Collective shrug to Pfizer bid reflects Congress stalemate

Shortly after announcing its £63bn bid for AstraZeneca last week, Pfizer embarked on a quiet campaign to sell a deal which once might have caused bipartisan uproar on Capitol Hill.

After all, a key part of the US drugmaker’s proposed of the Anglo-Swedish company involves redomiciling the combined company in the UK to significantly slash its US tax bill and take advantage of Britain’s more generous regime.

Pfizer “obviously reached out to members [of Congress] on both sides – it’s mostly what you would expect in terms of education,” said one person with knowledge of the effort.

Pfizer has clearly done something right – since the bid was unveiled, there has been relatively little criticism of the company on Capitol Hill. To the extent that there has been any anger, it has been directed at the US tax code itself for driving companies abroad.

“This has highlighted once again the vital need for tax reform that encourages companies to invest in the United States,” Sandy Levin, the top Democrat on the tax-writing House ways and means committee, told the Financial Times on Tuesday.

Dave Camp, the Republican who chairs the committee and recently launched his own planned overhaul of the tax code, made similar remarks immediately after Pfizer unveiled its bid.

The US drugmaker is well-known as one of the biggest corporate players on Capitol Hill and is certainly used to manoeuvring in Washington. Since 1989, it has spent $137.7m lobbying Congress on a wide range of issues, from health reform to international trade and taxes.

The company and its employees have given at least $43.4m in direct political contributions, according to the Sunlight Foundation, which tracks such spending.

But the collective shrug on Capitol Hill in regard to Pfizer’s bid reflects more than the lobbying of powerful politicians. It is also the product of a deeply divided Congress unable to tackle difficult issues.

The stalemate leaves impotence as the prevailing mood in Congress in the face of moves such as Pfizer’s.

“In the old days, if a US company announced they were going to exploit the law like this, the heads of the tax-writing committees in the House and Senate would have issued a one-line statement saying they would take action,” said one senior accounting executive who advises Congress.

“But it is all but impossible to pass legislation these days.”

There is little chance for any US tax reform plan to be enacted in the near term – midterm elections are in November. Even President Barack Obama’s recent proposal to clamp down specifically on tax inversions is likely to remain on ice until at least next year and probably beyond.

The US tax code allows so-called inversions that allow a company’s tax domicile to move abroad through a deal as long its shareholders do not own more than 80 per cent of the combined group.

The Obama administration has proposed changing the upper limit to 50 per cent, which would sharply narrow the universe of companies that would want to do such deals. That proposal is expected to save $17bn for the US government over a decade.

The largest US multinationals have been pushing US lawmakers for several years to reduce America’s 35 per cent corporate tax rate, which is among the highest in the world, and move towards a territorial system that does not tax foreign earnings.

Both the Obama administration, as well as Democrats and Republicans on Capitol Hill, support the idea of reform in general but disagree on the details, including on which business tax breaks to eliminate to fund the change.

For Pfizer, ensuring the debate in Washington is focused on the importance of tax reform, rather than any of its own activities, helps guarantee that the US political environment for the AstraZeneca takeover remains relatively tame in the US even as the issue roils UK politics.

Before Mr Obama’s 2008 election, Pfizer generally gave more of its money to Republicans. But in recent years, as it faced the passage and implementation of Mr Obama’s 2010 healthcare reform law, the group’s spending is now a roughly 50-50 split with Democrats.

Heading Pfizer’s Washington lobbying on the AstraZeneca bid, is Sally Susman, a significant fundraiser for Mr Obama and the daughter of Louis Susman, former US ambassador to the UK.

Alongside her is Ken Cole, a former General Motors’ lobbyist who left for the drug company after working on the US auto sector bailout.

One veteran Washington lobbyist cautioned that it was too soon for Pfizer to claim victory on Capitol Hill. “I’m surprised that people have been relatively quiescent about this. I would have expected someone to lead the charge against this ‘darned ole company’,” he said. “There is a chance opposition still occurs.”

Carl Levin, a Michigan Democratic senator who has taken on Apple and Caterpillar over tax avoidance in recent years, has not spoken out on the Pfizer bid yet, the lobbyist points out.

But one person close to the talks was relatively confident the dynamic would not change. “It’s early days but so far all the noise is on these broader issues: it’s not so much anti-Pfizer, or that Pfizer is unpatriotic, it’s that this is the result of a dysfunctional tax system,” the person said.

The talk in Washington is also about which American multinationals could follow Pfizer overseas in search of lower rates and the opportunity to use their offshore cash. At that point, Capitol Hill may be forced to react.

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