Mylan moving overseas in tax play
WHEELING – One of West Virginia’s greatest business success stories, Mylan Pharmaceuticals, is joining the parade of drug companies and medical device makers that are moving their corporate headquarters overseas where they will enjoy a lower tax rate – a practice known as “tax inversion.”
Earlier this month, Mylan announced it would acquire Abbott Laboratories’ generic drug operations located outside the U.S. in a $5.3 billion all-stock deal that will see the company reincorporate in the Netherlands as New Mylan. That outfit would then become the parent company of Mylan’s Pittsburgh-area operations, to be known as Mylan N.V.
Although Mylan will still pay taxes on its American operations, the move would reduce the company’s effective tax rate from 25 percent to 21 percent next year and into the teens in future years, according to published reports.
Following the announcement, Mylan Chief Executive Officer Heather Bresch – who is the daughter of U.S. Sen. Joe Manchin, D-W.Va. – downplayed the deal’s tax implications but acknowledged her frustration with the American corporate tax structure, noting 50 percent of the pharmaceuticals Americans consume come from overseas.
“Our country had no problem opening the borders and saying we want all the competitiveness we can get for our consumers, for everything else,” Bresch said during an interview with CNBC. “What our country failed to do was keep pace and make our country globally competitive for corporations. So if we want to sit here and have a discussion about how do we handcuff U.S. corporations to the United States, I think that’s unpractical and, quite frankly, ridiculous.
“We need to be talking about, as a country, how do we make this country globally competitive again,” she said.
Bresch also told CNBC that even without the tax inversion aspect, Mylan “absolutely” would have done the Abbott deal, adding it made sense for the company’s bottom line.
The story of Mylan Pharmaceuticals is a classic American rags-to-riches tale told over a period of more than 50 years. The operation started as a small distribution business in 1961 by U.S. Army friends Mike Puskar and Don Panoz, who operated out of a Pontiac Bonneville in White Sulphur Springs, W.Va. It became a multi-billion dollar pharmaceutical giant that has become a fixture on the Fortune 500 list and employs more than 22,000 people, including about 3,000 at two facilities in Morgantown.
An interesting dynamic surrounding the Mylan-Abbott deal is the family connection between CEO Bresch and Manchin, who since his arrival in the Senate has been outspoken about the need for America to close loopholes in its tax code and stop rewarding companies that move assets overseas to avoid paying taxes in the United States.
“That’s not right, that’s not fair and it’s not American,” Manchin told reporters in December concerning tax inversion.
Manchin was more measured in his comments this week following the Mylan announcement, though he expressed disappointment in the decision made by his daughter’s company.
“I am always disappointed when American companies feel the need to move overseas because of the U.S. tax code. However, this decision is systemic of a larger problem with our corporate tax code that puts American companies at a disadvantage with their global competitors,” he said. “Since the day I arrived in the Senate I have been advocating for a complete overhaul of our tax system, and I will continue to work with my colleagues on ways to reform our tax code so we are competitive in a global market and companies that manufacture and sell their products in America stay in America.”
Manchin did not comment on whether he would support discouraging tax inversions by drug companies such as Mylan and Chicago-based AbbVie – which recently announced it was acquiring a smaller, Irish firm in a similar move – by reducing Medicare and Medicaid payments.