No, it is not a good business practice and an obvious loophole. I disagree with the characterization of the taxing of revue based on where it is earned - as a loophole though. There is nothing strange or unique about that.
Of course such practices leave the company open to being able to strategize to recognize the allocations between,. The problem is they are far more sophisticated than those who investigate them or will potentially audit them. The thing is - it takes teams of CPA auditors just to produce the audited financial statement. And, that by standards is not anywhere near as through an audit as you would have to perform to find any tax compliance issues. It would easily cost a million dollars to audit Pfizer's USA operations and determine if they allocated USA revenues and expenses correctly. The IRS tends not not invest those kinds of resources though and are known to go for the low hanging fruit instead.
Theoretically though, if you were actually doing it honestly, taxing revenues based on where you earn the oney and not where you are incorporated, is actually the most fair taxation standards. The lack of honesty though, certainly complicates that.
I am curious about one thing though... the US doesn't restrict the amount fo R&D recoverable from the cost of prescriptions. Many other countries do - thus why the same drug is available in Canada for less. So, if Pfizer inverts to a foreign company - will it then be held to that country's law on the recoverable R&D - or is it based simply on where the sale is made? I am guessing it is based on where the sale is made.
So, IF they invert - can we essentially get them back by writing a law saying the R&D associated with prescription drugs manufactured by a company which is part of a control group who is incorporated in a foreign country - is capped, but leave open the no cap on whole owned and incorporated US companies?
That way we could promote competition here - while giving our US companies a price preference. AND - we can perhaps save the equivalent in tax dollars we loose through this inversion - by the savings on the cost of the prescrption drugs paid for through various Gov't insurance and Gov't health care plans. I would be curious to see the data on that and if we could actually make out better under such a scenario.
connie
