Although Pfizer Inc. will be saving hundreds of millions of dollars in annual taxes by buying AstraZeneca, Pfizer's stockholders could end up paying more tax. The trigger is unfamiliar U.S. tax regulations that are initiated in a purchase of an overseas entity and relocation of a U.S. business.
According to these rules, the 6.38 billion common shares that Pfizer has distributed to shareholders will be subject to capital gain tax on the increase in value when converted after the companies merge.
According to The Wall Street Journal, Pfizer shares closed at $29.17 on May 8, up 15 cents in New York Stock Exchange trading. AstraZeneca closed at £47.13, up 82 pence, on the London Stock Exchange.
Pfizer has been attempting to buy the British-owned competitor since November and if they can please AstraZeneca's shareholders, the two companies would create the largest pharmaceutical company in the world. The newly merged company would move their headquarters to the U.K. because of the lower corporate taxes. Pfizer's estimated annual savings could be up to $1 billion in taxes alone if this deal goes through.
Source: Rockoff, Jonathan D. and Saunders, Laura, "Pfizer Holders Could Face Tax Hit in a Deal for AstraZeneca," The Wall Street Journal, May 8, 2014.