The global system for taxing multinational companies is broken, but no country wants to alter it too radically for fear of making it worse. That was my impression after hearing international tax experts gathered in Oxford this week to discuss reform.
Reform of corporate taxation has been thrust onto the political agenda in Europe and by controversy over the tax policies of companies such as Google and Starbucks. The ease with which they can shift intellectual property and royalty payments to low tax regimes has outraged politicians on both sides of the Atlantic.
The attempt by Pfizer to turn itself into a UK company for tax purposes by acquiring AstraZeneca has also drawn attention to the use of “tax inversion” by US companies. They want to use the cash piles held overseas to make acquisitions that allow them to change corporate nationality and reduce their taxes.
But while most countries agree that the system of global taxation in place since the 1920s is flawed, there was no consensus at the conference held by the Oxford University Centre for Business Taxation on how to fix it. Instead, most prefer to play defence.
For students of perverse incentives created by tax, it is a bonanza week. Apple has raised $12bn in bonds to buy back shares, despite having $130bn sitting in cash overseas, and Pfizer wants to turn itself into a UK-domiciled company by acquiring AstraZeneca for £60bn.
Pfizer has finally made a public announcement of its interest in AstraZeneca. One of the main points of the deal, it turns out, is tax inversion – turning Pfizer into a UK-domiciled company.
Pfizer is making tax inversion a point of the proposed deal Photo: Bloomberg
This time last year, I wrote a New Year column with seven predictions for events that would occur in business in 2011. It is time for reckoning and I must say that I scored poorly, with only three out of seven correct.
To be fair to me, the predictions were deliberately provocative. As I noted at the time: ”They are intended to be adventurous enough to be interesting – even if I turn out to be wrong, they should at least be things to watch.”
I was at least right about that. With no more excuses, let’s take a look at my predictions and what happened.
Old habits die hard in US corporate governance: Pfizer has just announced it will hand chief executive Ian Read the chairmanship. That re-creates the dual chair-CEO role and goes against the slow US trend towards splitting the two top board jobs.
According to Spencer Stuart, the headhunter, 41 per cent of top US companies now separate the roles (though the chairmanship is too often held by the ex-CEO), compared with 26 per cent in 2001. So, as governance expert Lucy Marcus tweeted on Tuesday, Pfizer’s decision is an “astonishing step backward“.
Whether or not Pfizer’s tactics to preserve Lipitor sales as it loses its patent protection succeed, they are a sobering reflection of the lack of success of big pharmaceutical companies in trying to replicate their past days of blockbuster glory.
Alan Rappeport’s report on how Pfizer is heavily cutting the price of its anti-cholesterol drug to see off generic competition illustrates how important blockbuster drugs from the past remain to Big Pharma.
As Forbes noted in a long piece on Lipitor, this reflects the prolonged squeeze on pharma companies, which have been struggling to come up with new products to replace those now falling off the patent cliff – Lipitor being the prime example.
I have two immediate reactions to the shock announcement that António Horta-Osório is temporarily stepping aside as chief executive of Lloyds Banking Group because of stress. One is frivolous, one serious:
1) His predecessor – the eerily impassive Eric Daniels – must have the constitution of an ox, given that he led the big UK bank through the credit crunch, a controversial merger with HBOS and the 2008 government recapitalisation. (Mr Daniels is a smoker, which I suppose may have helped calm his nerves).
2) The rarity with which top executives admit to suffering stress must mean boards are underestimating the occurrence of stress-related illness at the top – with potentially dire consequences.