Tax inversions may be a taxing issue for Congress and the White House, but one expert says they must deal with the situation regardless.
Tax inversions have been in the news a lot, especially with this week's multibillion-dollar merger of Pfizer and Allergan. According to The Associated Press, Pfizer will keep its global headquarters in New York, but the drug-maker will combine with Botox maker Allergan as a company called Pfizer PLC. That company would have its legal offices in Ireland, a country with a much lower corporate tax rate.
Alan Viard, resident scholar at American Enterprise Institute, explains the Pfizer/Allergan merger isn't technically a tax inversion, even though people have applied the term to the deal.
"The original inversions were transactions in which a U.S. parent company and its foreign subsidiary simply inverted or switched places," he says. "So the foreign company became the parent and the U.S. company became the subsidiary, without any other companies being involved.
"But today's transactions," he continues, "involve mergers with foreign companies, where a foreign company ends up being the parent of the combined group. So people have long been calling those inversions, even though they're not technically inversions."
On that note, OneNewsNow asked Viard whether he thinks the Pfizer and Allergan deal is bad and why. He says inversions are really more of a symptom of a problem than the actual problem.
"The United States tries to tax the income earned overseas by subsidiaries of U.S.-chartered companies, a practice that most countries don't follow with respect to their companies," he responds.
"It's not too surprising that companies therefore would try to avoid having U.S. charters; or if they currently have them, try to get rid of them. I think inversions will continue, and that this will be an issue that congress and the president will need to deal with."
Pfizer is best known for making Viagra and Lipitor.