Mylan Pharmaceuticals has come a long way since Army buddies Mike Puskar and Don Panoz started selling drugs to doctors out of an old Pontiac 50 years ago. Today Mylan is a world leader in generic drugs with sales in 140 countries and territories.
The company moved its corporate headquarters from Morgantown, West Virginia to suburban Pittsburgh in 1976, but it still maintains a large operation in Morgantown. Now Mylan is the latest company to engage in the profitable, but also controversial business move known as “inversion.”
That’s where a U.S. company merges with a smaller foreign company in order to benefit from a lower corporate tax rate overseas. In this case, Mylan is acquiring Netherlands-based Abbott Laboratories for $5.3 billion worth of Mylan stock, giving Abbott 21 precent ownership of the company.
Mylan chief executive Heather Bresch told the New York Times that the move will lower the company’s effective tax rate of 25 percent to 21 percent the first year and into the high teens in three to five years. According to the Times, “Mylan will continue to pay taxes in the United States on domestic profits, but not on its business operations abroad.”
Depending on one’s beliefs, the shift by U.S. companies overseas to save on their tax bill is either an inevitable business decision because of the high corporate tax rate in this country (35 percent) or a disloyal act where profits trump patriotism.
Bresch argues her company made the move reluctantly after trying unsuccessfully to persuade Capitol Hill that corporate taxes are too high.
“It’s not like I’ve not been vocal up there talking to anybody who’d listen to me,” Bresch told the Times’ Andrew Ross Sorkin. “But you know what they all say? ‘Yea, uh huh, O.K. Uh huh.’”
Still, the decision creates an awkward juxtaposition. Esquire magazine named Bresch “Patriot of the Year” in 2011, and her father is U.S. Senator Joe Manchin from West Virginia.
“I am always disappointed when American companies feel the need to move overseas because of the U.S. tax code,” Manchin told the Times. “However, this decision is systemic of a larger problem with our corporate tax code that puts American companies at a disadvantage with the their global competitors.”
The Obama administration wants to close what it says is a tax loophole that allows inversions. Treasury Secretary Jacob Lew says lawmakers “should enact legislation immediately… to shut down this abuse of our tax system.”
But it’s not that simple. Large corporations with well-heeled lobbyists and expert tax lawyers can usually figure out a way to manage the complicated and outdated tax code in their favor. A better approach would be to simplify the tax code and lower corporate taxes to a more competitive rate.
If Congress fails to act, or takes a bandaid approach, America will continue to lose some of its best, home grown industries.