Billions in Offshore Earnings

Pfizer reported a total international tax bill of $490 million for its $5.4 billion in international taxable income, according to the company’s 10-K filing. Pfizer routinely reports making profits overseas and losses in the United States, Setser said.

“If you look at Pfizer historically, you will find it is fairly typical to report losing money in the US and making gobs of money abroad,” he added. “In some cases [Pfizer is] paying all of [its] income tax abroad.”

Sixteen of Pfizer’s 300-plus subsidiaries are based in Ireland, a known tax haven that is home to Apple, Microsoft, and other large corporations’ subsidiaries. In 2020, a European Union–funded report found the country had an effective corporate tax rate of just 7 percent.

According to a 2021 article by the Currency, an Irish investigative news outlet, Pfizer’s Irish operations are worth $100 billion, making it one of the largest companies operating in the country.

Ireland is a “leading manufacturing base for Pfizer globally,” and part of Pfizer’s “Worldwide Research and Development” is based in the country, the drug company states on its website. But the pharmaceutical company is tight-lipped about the specifics of its operations there.

“None of [Pfizer’s] 25 current or recently liquidated Irish subsidiaries publish financial data,” the Currency reported in 2021. “Instead, they are consolidated into CP Pharmaceuticals International CV, which is the central holding entity for the group’s non-US activities.”

CP Pharmaceuticals is based in the Netherlands and is not subjected to corporate taxes, which allows the company to provide “a blanket guarantee for the liabilities of Pfizer’s Irish subsidiaries, for the specific purpose of exempting them from filing accounts in Ireland,” the outlet wrote.

Ireland and the Netherlands are not the only tax havens where Pfizer operates. According to its regulatory filing, Pfizer also has subsidiaries in Switzerland, the British Virgin Islands, and Singapore, among other locales with low tax rates.

The use of offshore subsidiaries can allow companies to dodge tax bills in their home countries, according to a recent study by the Institute on Taxation and Economic Policy.

“Corporations can use convoluted accounting schemes to make the profits they earn in the United States appear to be earned in countries like Ireland, which has a very low corporate tax rate, or countries like Bermuda and the Cayman Islands, which have no corporate tax,” the study notes.

Pfizer claims that it is “continuing to leverage a global supply chain and manufacturing network that spans four continents and includes more than 20 facilities.”

In its regulatory filing, Pfizer said it has thirty-seven plants across the world that “manufacture products for our commercial divisions, including in Belgium, Germany, India, Ireland, Italy, Japan, Singapore, and the US.”

One of the main arguments used for the 2017 Trump tax cuts was that dropping the tax rate from 35 percent to 21 percent would incentivize corporations to bring some of their global profits and earnings back to the United States.

​​“The argument was there are all these unused offshore dollars that could be put to work investing in the US if we just provided a tax holiday,” said Setser with the Council on Foreign Relations.

After the Trump tax cuts were passed in 2017, Pfizer reported a $11 billion earnings boost related to the tax cuts in January 2018. That same month, Pfizer promised to begin paying $15 billion in “repatriation taxes” over the succeeding eight years, thereby shifting some of its overseas profits back to the United States.

According to its recent regulatory filing, six years into its promise, Pfizer still has $6 billion left to pay in repatriation taxes. In total, this $15 billion is just a fraction of what Pfizer has in offshore earnings — and the drug company said it has no plans to bring any of it back to the United States.

“As of December 31, 2023, we have not made a US tax provision on $49.0 billion of unremitted earnings of our international subsidiaries,” the drug company wrote in their 10-K filing. “As these earnings are intended to be indefinitely reinvested overseas, the determination of a hypothetical unrecognized deferred tax liability as of December 31, 2023 is not practicable.”

One way countries could start to rein in corporate tax dodging is the Organization for Economic Co-operation and Development (OECD) agreement — a global minimum corporate tax agreement among more than 130 nations.

Established in 2021, the “groundbreaking” OECD deal would allow countries to institute a standard 15 percent global tax on companies making more than $21 billion dollars globally that are headquartered within their jurisdictions. If the deal is fully implemented, it would affect more than 90 percent of the world’s economic output.

If a corporation’s home country decides not to tax the corporation at least 15 percent, then countries that are home to the corporation’s subsidiaries have the right to boost taxes to meet the 15 percent requirement, Setser said.

“The idea is there’s no incentive to have profits in [tax havens], because you’re going to be forced to pay 15 percent either in your headquarters’ jurisdiction, or in some other location where you have an operating subsidiary,” he added.

Pfizer admits in its regulatory filing that a change in US tax laws or “the adoption of global minimum taxation requirements outside the US” could pose a potential financial risk to the company’s bottom line. The drug company spent $81.7 million since 2017 lobbying on issues related to intellectual property rights, the 2017 Trump tax cuts, an international global minimum tax, drug pricing, and other topics, disclosures show.

While the United States has entered the OECD agreement, fully enacting it remains a hurdle. In order for the United States to enter into the agreement, two-thirds of the Senate would have to approve, and the deal is facing stiff opposition from some Republicans.

A group of fourteen Republican Senators said the deal “may ultimately put US businesses at risk” and could “jeopardize US competitiveness.” Additionally, Rep. Jason Smith (R-MO) introduced legislation that would impose retaliatory taxes on “any foreign country that imposes unfair taxes on US businesses and workers under the [OECD]’s global tax deal,” noted a press release from the House Ways and Means Committee.

Pfizer has donated $43,000 to Smith’s campaign efforts since 2015, according to Federal Election Commission data.

If the United States decides not to enter into the OECD agreement, lawmakers will “basically be leaving money on the table,” said Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy.

Some senators are trying to crack down on corporate tax dodging by introducing legislation that would institute a $0.07 tax on “book income” over $100 million. The legislation, called the Real Corporate Profits Tax Act, would generate nearly $700 billion in revenue over a ten-year period, according to a press release from Sen. Elizabeth Warren (D-MA), cosponsor of the bill.

“Companies cannot be allowed to continue reporting billions in profits to shareholders and then turn around and pay nothing in taxes to the IRS,” she wrote.

How to Dodge the Taxman

For years, the Institute on Taxation and Economic Policy has been tracking how the 2017 Trump tax cuts have affected corporate income taxes.

Their latest study, published in February, found that the 342 most profitable corporations based in the US are paying an average corporate tax rate of 14 percent, far less than the 21 percent rate instituted in the Trump tax bill.

“What appears to be happening is a straightforward use of tax breaks that Congress, either recently or in decades past, has chosen to enact,” said Gardner, one of the study’s lead authors. “It’s not that [corporations] are cheating, it’s just that they’re using the tax breaks that they’ve lobbied for.”

Many corporations dodge US taxes through a combination of four different avenues. Along with offshore profit shifting, the loopholes include exploiting research and development tax breaks, paying executives in stocks, and taking advantage of “accelerated depreciation” — a policy put in place in the 2017 tax law that allows corporations to immediately write off equipment costs rather than writing off the costs as the equipment breaks down over time.

“Lawmakers often justify these provisions as necessary to achieve some important goal, such as encouraging investment or research,” the study states. “But they seem to accomplish little beyond reducing tax revenue that could pay for public investments.”

Corporations can earn tax breaks for several reasons, but the most exploited loophole is the research and development tax break, note the study’s authors. The tax break has been exploited by some companies to research seemingly trivial subjects, such as Nike conducting research on how to make more comfortable shoes and Chipotle exploring “ways to modify their foods,” the researchers state. The authors added that it is difficult to determine how much corporations benefit from this tax break, because most do not disclose how much they save through it.

By paying executives in stocks rather than dollars, corporations are also able to write off the pay for tax purposes. The Institute on Taxation and Economic Policy report notes that the tech sector overwhelmingly uses this loophole, with Apple and Microsoft reporting more than $6 billion in stock option tax benefits from 2018 to 2022.

The accelerated depreciation loophole allows corporations to write off equipment costs faster than the equipment breaks down, which can incentivize corporations to buy unnecessary equipment and then write it off. This policy has been in place for quite some time, the study notes, but the Trump tax cuts implemented the “most extreme version” of the loophole and allowed corporations to write off the costs immediately, which are essentially “interest-free loans from the IRS.”

“In theory, accelerated depreciation is merely a shift in the timing of tax payments,” the study’s authors note. “Tax deductions that would otherwise be taken later are taken now, and taxes that would otherwise be paid now are paid later.”

The study found that utilities, gas, and electric corporations are the worst offenders of corporate tax avoidance, followed by oil and gas pipeline companies and then motor vehicle industries.

“Carry Forward Losses Indefinitely”

According to its regulatory filing, Pfizer attributes much of its 2023 losses to “significant declines in revenues” of Comirnaty, its COVID-19 vaccine, and Paxlovid, an antiviral medication used to treat COVID-19.

Pfizer’s reported loss of $4.4 billion dollars allows the company to achieve lower tax rates in future years, said Gardner with the Institute on Taxation and Economic Policy.

“The idea that governs our corporate taxes is that losses should be able to [be carried] forward,” he added. “And right now the way it works is that you can carry forward losses indefinitely, there’s no limit on how long you can take to use them [for tax reductions].”

Pfizer’s top five products include Comirnaty, a blood thinner called Eliquis, the Prevnar vaccines used to protect against pneumococcal bacteria, the breast cancer drug Ibrance, and Vyndaqel, which treats nerve damage. These five products have raked in billions of dollars for the drug company, and it charges Americans exponentially more for many of these drugs than it charges in other countries — even though the development of some of these medicines, like nearly all US drugs, was heavily subsidized by taxpayers.

Eliquis, Prevnar, Ibrance, and Vyndaqel all reported increases in year-to-year sales and earned Pfizer more than $21 billion last year combined.

Eliquis, a drug meant to reduce the risk of stroke, is coproduced and sold by Pfizer and Bristol-Myers Squibb. The annual list price for Eliquis is $7,100 in the United States, compared to just $760 in the UK and $650 in France.

Ibrance, the breast cancer drug, costs Americans $12,811 for twenty-one pills, while the same dosage costs $2,905, $4,325 and $3,176 in Australia, Canada, and France, respectively, according to a 2021 Government Accountability Office report.

Pfizer acknowledges that US-based sales contribute a significant portion of its yearly revenue.

“The US was the only country to contribute more than 10% of all Pfizer revenue in 2023, 2022, and 2021,” the company wrote in a regulatory filing.

In its filing, Pfizer attributes its low tax rate, -105.4 percent, to research and development tax breaks, state and local tax deductions, charitable donations, and other reasons.

“The reduction in our effective tax rate is a result of the jurisdictional location of earnings and is largely due to lower tax rates in certain jurisdictions, as well as manufacturing and other incentives for our subsidiaries in Singapore and, to a lesser extent, in Puerto Rico,” Pfizer wrote.

Pfizer also noted that it is regularly audited by the Internal Revenue Service, and that its 2016–2018 taxes are currently under audit.

Until Congress reins in tax avoidance by Pfizer and other corporations, the American economy will pay the consequences, said Setser with the Council on Foreign Relations.

“The United States now stands out by allowing many of its major companies to achieve effective tax rates of 10 percent by moving both production and profits out of the United States — a giveaway to the shareholders of the pharmaceutical companies that comes at substantial cost to both the US Treasury and the US economy,” he said.