By Richard Rubin 

WASHINGTON-- Pfizer Inc.'s decision to escape the U.S. tax system by putting its legal headquarters in Ireland has stoked another round of calls in Washington to revamp tax rules and protect the corporate tax base.

But even Pfizer's merger with Allergan PLC, the largest inversion deal ever, doesn't look likely to dislodge the obstacles preventing action.

Political and technical hurdles to overhauling the tax code--even a limited set of changes to the taxation of U.S. companies' foreign income--have stymied lawmakers for years. Now, a fragile consensus that had begun to take shape between President Barack Obama and congressional Republicans is under attack from both sides.

Pfizer and Allergan on Monday announced a merger worth more than $150 billion, creating the world's biggest drug maker and moving a top American corporate name abroad, at least for tax and legal purposes. Business groups and lawmakers in both parties said they hoped the deal could catalyze congressional action to make staying in the U.S. more attractive.

"If this isn't a wake-up call, I don't know what is," said Rep. John Delaney (D., Md.). He has been promoting international tax changes that would lighten the tax burden on many U.S. companies operating overseas and get revenue for the government by taxing stockpiled offshore profits.

Lawmakers trying to fund a fresh round of highway construction with proceeds from revamped international tax rules this year started their detailed talks too late, Mr. Delaney said in an interview Monday, and the whole effort got set aside when the House spent October finding a new speaker.

The approach has powerful backers, including Mr. Obama, Sen. Charles Schumer (D., N.Y.) and House Speaker Paul Ryan (R., Wis.) Still, any attempt to revive a deal in 2016 will be complicated by polarized election-year politics and each party's expectation that it could get a more advantageous policy in 2017. Republican presidential candidates cite inversions in proposing their own plans to lower the corporate tax rate and largely stop taxing U.S. companies' foreign income.

GOP presidential candidate Donald Trump called the Pfizer move "disgusting" in a statement Monday and said "our politicians should be ashamed" for a tax system that encourages such moves.

Among Democratic contenders, Vermont Sen. Bernie Sanders called the deal a "disaster" Monday and said the administration should block it. Front-runner Hillary Clinton said U.S. taxpayers would be left "holding the bag." Mrs. Clinton said Monday she would propose specific business-tax proposals in coming weeks. "I urge Congress to act immediately to make sure the biggest corporations pay their fair share," she said.

U.S. companies pay the full 35% corporate tax rate--the developed world's highest--on all income they earn around the world. In contrast, many other governments tax companies only on income generated within that country. American companies get tax credits for payments to foreign governments and can defer the remaining U.S. tax until they bring the money home.

That system gives companies incentives to shift profits overseas or move their tax addresses to low-tax locales and deplete the U.S. tax base using intracompany transactions. Few large multinationals pay 35%, especially in the technology and pharmaceutical industries, where it is easier to locate profits in low-tax jurisdictions. According to securities filings, Pfizer hasn't reported a pretax profit in the U.S. since 2007.

"Let's stop the political hand-wringing and get to work creating a U.S. tax code that's built for growth," said Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee. "That means lower, globally competitive business rates that allow overseas profits to easily flow back into America."

Mr. Obama ran for office promising to end tax breaks that ship jobs overseas. Early in his presidency, he proposed tougher limits on companies' ability to defer U.S. taxes on foreign income.

The president, big businesses and congressional Republicans eventually reached positions that overlapped: A lower corporate tax rate, fewer breaks, lighter taxes on foreign income and a one-time tax on more than $2 trillion in stockpiled foreign earnings. They split on which breaks should vanish and how proceeds from the one-time tax should be spent.

That consensus is fraying. Mr. Brady, the new Ways and Means chairman, said the U.S. should cut its corporate tax rate to 20% or lower in the face of global competition, well below Mr. Obama's 28% proposal or the 25% rate from GOP plans.

Meanwhile, some Democrats, notably Sen. Elizabeth Warren of Massachusetts, criticize the consensus from the opposite direction. She said last week that corporations pay too little tax and called parts of Mr. Obama's plan a "giant wet kiss" to big companies.

Write to Richard Rubin at richard.rubin@wsj.com

 

(END) Dow Jones Newswires

November 23, 2015 17:08 ET (22:08 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
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