Protest against Pfizer’s huge profits on corona vaccines, at the company's offices in Manhattan © Steve Sanchez/Pacific Press/Shutterstock
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Corona and tax hacks make Pfizer the most profitable company in the Netherlands
Pfizer’s Dutch holding company earned 21.6 billion dollars last year, mainly thanks to its corona vaccine. Profits are extra high because this Pfizer financial vehicle pays only 9.3 per cent tax, far below the global minimum rate of 15 per cent due to come into effect in 2023. ‘We are being robbed in broad daylight.’
- The recently released annual report of the Dutch holding company of Pfizer, maker of the most successful vaccine to prevent the severe effects of covid, shows that almost all of the US multinational’s profits end up here. The holding company registered a record profit of 21.6 billion dollars, which makes it the most profitable company in the Netherlands.
- By cleverly exploiting tax rules, the holding company’s effective tax burden is only 9.3 per cent. Vincent Kiezebrink, a tax researcher at SOMO, calls it robbery. Gabriel Zucman, a prominent tax avoidance and evasion academic, recommends further investigation.
- The vaccines were co-developed at universities with taxpayers’ money, making the low tax payment even harder to swallow. On top of that, various governments paid Pfizer billions for the vaccines.
- State Secretary Marnix van Rij says the Cabinet is committed ‘to tackling unusual tax constructions’ in the coming years. That will be a profitable excercise; Van Rij hopes that it will render ’a structural 550 million euros in 2025’.
‘We do clinical research here,’ media-savvy director Marc Kaptein replied when BNR Nieuwsradio questioned him about the role the Netherlands plays on behalf of vaccine manufacturer Pfizer. ‘And we deal with pharmaceutical distribution.’
Kaptein downplays the Netherlands’ role: practically all of the pharmaceutical concern’s globally earned profits are registered under its dull Capelle aan den IJssel office. So, 21.6 billion dollars of the total 22 billion profit ends up in the Netherlands – a record-high amount courtesy of corona.
By funnelling all that money through the Netherlands, the US company not only manages to evade the US tax authorities but also those from all other countries where it operates.
Pfizer’s financial holding company in Capelle pays virtually nothing in the Netherlands
According to the annual report, this massive increase in sales was mainly due to the corona vaccine and the Paxlovid drug for covid patients. Pfizer shares the proceeds from the vaccines with its German partner BioNTech.
According to its annual report, CPPI effectively paid only 9.3 per cent tax last year due to their clever exploitation of tax rules. Profit before tax was 23.6 billion dollars; 2.1 billion was remitted to tax authorities in countries where Pfizer sells its products.
Fiscally ‘transparent’
Pfizer’s financial holding company in Capelle pays virtually nothing in the Netherlands. In fact, it made a 59 million dollar loss, according to its annual report. The profit belonged to the subsidiaries abroad: 21.6 billion dollars (at the current exchange rate, 21.5 billion euros; at the average exchange rate in 2021, 18.1 billion euros). ‘CPPI CV owns (directly or indirectly) most of Pfizer’s subsidiaries outside the United States,’ Pfizer’s spokesperson confirmed to Follow the Money.
Pfizer can pass on the profits to other jurisdictions unseen because a CV – a limited partnership – is ‘fiscally transparent’, meaning the tax authorities pretend it doesn’t exist. It seems Pfizer is diverting profits to Delaware, a US state with very favourable tax rules for large companies.
Pfizer can pass on the profits to other jurisdictions unseen because a CV – a limited partnership – is ‘fiscally transparent’, meaning the tax authorities pretend it doesn’t exist. It seems Pfizer is diverting profits to Delaware, a US state with very favourable tax rules for large companies.
‘This is definitely worth investigating. There is no reason for certain companies to pay less tax than others’
In most countries where the group sells its vaccines and pharmaceuticals, the effective tax rate is significantly lower than the corporate tax rate, which is usually between 18 and 35 per cent. In the Netherlands, the corporate tax rate is 25.8 per cent.
‘If you consider where Pfizer does business, 9.3 per cent is very low,’ says Vincent Kiezebrink of the Centre for Research on Multinational Corporations (SOMO), which has been studying the tax morale of pharmaceutical companies for some time.
‘This is definitely worth investigating,’ Gabriel Zucman says to Follow the Money. Zucman is a prominent academic specialising in tax avoidance and tax evasion; he is director of the EU Tax Observatory. ‘There is no reason for certain companies to pay less tax than others.’
Commonly used tax hack
Kiezebrink 'is flabbergasted'. ‘We are being robbed in broad daylight. The vaccines were developed at universities, partly with taxpayers’ money, and now governments are buying back those vaccines at a hefty price with taxpayers’ money. Yet Pfizer still finds it necessary to funnel money through tax havens.’
Last year, CPPI had 208 holdings worldwide, including dozens in tax havens such as the Netherlands (27), the UK (18), Ireland (16), Luxembourg (9), Delaware (9) and Singapore (5). Pfizer says it operates in 165 countries. In countries where it does not have its own sales offices, such as Brazil and Albania, vaccine sales are also funnelled through the Netherlands through yet another financial vehicle, Pfizer Export bv.
There is no real reason, other than a fiscal one, for the revenue to flow through the Netherlands. Pfizer is headquartered in New York, its parent company is registered in Delaware, and it does not produce its vaccines and drugs in the Netherlands.
‘The government is committed to tackling unusual tax constructions in the coming years’
Most plausibly, Pfizer chose the Netherlands in 1997 when it established CPPI for its advantageous tax rules and because of the possibility of setting up a CV structure.
Until recently, this was a commonly used tax hack by US multinationals in particular, such as Abbott, General Electric, Heinz, Caterpillar, Time Warner and Foot Locker. The American Chamber of Commerce, the lobbying organisation for US companies in the Netherlands, estimated in 2016 that 80 per cent of US investments in the Netherlands were being made through a limited partnership or similar structure.
Tax evasion
Two years ago, the Netherlands amended the law. As a result, the limited partnership is no longer viable as a means for multinationals to evade tax in other countries. But Pfizer clearly demonstrates that it is possible to plan around that, although it is becoming increasingly difficult, says Peter Kavelaars, professor of fiscal economics at the Erasmus University in Rotterdam. ‘In recent years, many regulations have been added that have reduced planning possibilities.’
State Secretary of Finance Marnix van Rij wholeheartedly endorses this, and he promises that the Cabinet will do more about harmful tax constructions. ‘The government is committed to tackling unusual tax constructions in the coming years. By doing so, the Cabinet aims to generate income that will yield a structural 550 million euros in 2025.’
‘If Pfizer is indeed using tax constructions, then it’s not playing by the rules,’ according to Kavelaars. ‘Then it would be desirable to “modernise” the corporate fiscal policy, but I cannot tell from a brief glance at the annual report whether constructions are being used, and if so, which ones. Pfizer might be using patents and royalties to funnel money from high-taxed jurisdictions to low-taxed ones.’
Kiezebrink finds it worth noting that CPPI has large loans on its books. For instance, it has borrowed 34 billion dollars from unspecified subsidiaries, and it is quite possible that the interest payments flow to one of many companies in another tax haven. In 2021, CPPI received 15.3 billion dollars in loans from Pfizer Delaware.
‘The margin on the vaccines is roughly 60 per cent, so Pfizer keeps 60 cents on each euro earned’
Kavelaars agrees that a 9.3 per cent tax rate is certainly on the low side, especially given Pfizer’s current role in public health. ‘One could say that a company with great social significance, such as a medical concern or an energy company, should know better than to push the limits of what is fiscally allowed, compared to Akzo or Philips, for example. But such moral judgements are of little interest to fiscal experts because it’s impossible to distinguish between types of companies. Think of it what you may; on a fiscal level, you can’t do anything with it.’
Minimum tax rate
It’s officially unknown what governments pay for the vaccines, but a leak revealed that the European Union first paid 15.50 euros a piece for Pfizer’s corona vaccine and 19.50 euros after July 2021. ‘The margin on the vaccines is roughly 60 per cent, so Pfizer keeps 60 cents on each euro earned,’ Kiezebrink calculates.
Pfizer’s effective tax rate is also much lower than the internationally widely supported proposal for a minimum rate of 15 per cent for multinationals. That plan should come into effect in 2023, but Kavelaars already anticipates that it will fail to happen.
‘The EU and OECD have yet to reach an agreement,’ Kavelaars says. ‘The Netherlands just recently released an internet consultation on a draft bill, but that too will obviously take some time before it passes into law, if at all.’
Introducing and enforcing a minimum rate is immensely complex, says Kavelaars. ‘The way profits are calculated differs per country. Multinationals operate in many countries, so they may pay enough in one country but not in another. In short, it’s a complete chaos.’
Kavelaars cannot speculate on what precisely constitutes a reasonable rate. ‘If you had asked me ten years ago, I would have found an effective rate of around 10 per cent acceptable. For a long time, so did the Netherlands. Whether 15 per cent is acceptable, well, nobody knows. It is a rate that the Americans came up with. But perhaps Europe will deem 20 per cent more reasonable in a few years. In the EU, rates average between 20 and 25 per cent.’
Kavelaars knows that this topic also dominates boardroom meetings. ‘You can see that some multinationals are aware of recent social developments, and they are adapting. Shell, for example, voluntarily publishes how much tax it pays in each country.’
The top 7
A turnover of 56.2 billion dollars is a new record for CPPI; its old record dates back to 2011: 51.2 billion dollars.
Over the past 12 years, from 2009 to 2021, Pfizer allowed 205.4 billion dollars in profits to flow through the Netherlands
The highest profit CPPI previously recorded was 19.8 billion dollars, in 2017, but back then, a lot more was weighed in. Over the past few years, divisions have been divested, and recently, the unpatented pharmaceutical and consumer healthcare divisions merged into joint ventures with Mylan and GlaxoSmithKline, Pfizer’s industry peers, respectively. Over the past 12 years, from 2009 to 2021, Pfizer allowed 205.4 billion dollars in profits to flow through the Netherlands.
CPPI, measured by turnover, was already among the fifteen largest companies in the Netherlands and thanks to its corona vaccine, it’s now in the top seven. CPPI’s high margins makes it by far the most profitable company among those seven.
Stellantis, the holding company of the merged Peugeot, Fiat and Chrysler brands, is the largest company with offices in the Netherlands based on its turnover (149 billion euros in 2021). Stellantis booked a profit of over 14 billion euros for the previous year. For the remaining companies in the top seven, profit yields remained between 1.4 and 4.2 billion euros.
Dividend
‘Pfizer is fully compliant with tax laws and pays all taxes due in all jurisdictions in which it operates,’ the pharma spokesperson commented. ‘Pfizer operates in 165 countries, each with its own regulations and corporate tax rates.’
As to what Pfizer will do with its massive profits, the spokesperson would not disclose. According to the annual report, an extra 480 million dollars will go to research and development, so it seems this division does not receive that much. ‘For information regarding Pfizer’s R&D spending and other fund usages, we refer you to our “newsroom” on our website. In addition, the investor relations section contains more details on the dividend history.’
The dividend payable this year, at 40 cents per share per quarter, is the highest since 1995.
‘The Cabinet considers tax avoidance undesirable, regardless of the market in which the companies operate, and regardless of who the customers are,’ State Secretary Marnix van Rij commented via his spokesperson on whether it is appropriate for a company that owes its most successful product to university research to aggressively avoid tax.
Van Rij’s spokesperson stressed that the State Secretary cannot comment on individual cases. He is speaking in general terms and not specifically about Pfizer.
‘The Cabinet thinks it is important that everyone, including large companies, pay their fair share of taxes and thus contribute to collective provisions. Hence, recently many measures were imposed to tackle tax avoidance and to balance the taxation of multinationals.’
‘The Cabinet will continue the fight against tax evasion unabated,’ Van Rij promises. ‘Internationally, the Cabinet is committed to taking further steps in revising the international tax system. For instance, the Netherlands continues its efforts to reach an agreement within the EU on the proposed directive of setting a global threshold for taxation. The Cabinet believes that the risks of artificial profit shifting could be tackled most effectively if done in the widest possible international context.’
Although the Netherlands ‘meets international transparency and exchange of information standards’, ‘it’s true that the Netherlands has been misused for tax-avoiding structures.’ ‘On a national level, the Cabinet is taking steps to further tackle tax evasion,’ the State Secretary said. ‘The Tax Authorities are taking action against tax-avoiding structures.’
‘If it turns out that the existing laws and regulations are inadequate, this may prompt consideration of whether laws and regulations should be amended. Moreover, the Cabinet is committed to tackling unusual tax constructions and inefficient or ineffective tax schemes in the coming years. By doing so, the Cabinet aims to generate a budgetary income that will yield a structural 550 million euros in 2025.’
Van Rij points out that if a company also has a subsidiary in the Netherlands, it does not mean ‘that a low brake mean effective pressure (BMEP) is caused by the Dutch system. Besides, a low BMEP rate cannot be equalled to tax avoidance.’ According to Van Rij, the low tax burden may also have originated at the foreign subsidiaries.
But ‘the Cabinet has been adopting policies specifically against unwanted flow-through companies for a long time. Tackling tax avoidance and flow-through companies that do not make a genuine economic contribution remains an important spearhead for this Cabinet. The Cabinet is convinced that the opportunities for tax avoidance will be further reduced in the coming years.’
Translation: Delia Burggraaf
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