Pfizer Inc. (NYSE:PFE) is all set to finish the merger transaction with Botox maker Allergan PLC in the second half of 2016. Reports claim that this merger will create troubles for company’s shareholders as they are likely to come under IRS’ radar.
Post this merger, most of the shareholders of the company will receive a capital gain tax bill from IRS. Among these shareholders lies one name that’s most likely to face serious tax issues. Company’s CEO and Chairman, Ian Read, holds common shares worth $8.3 million. As soon as this merger happens, he is likely to face some serious tax issues.
Insights of The Matter
It’s not the first time when a top executive has come under IRS radar. There were many occasions when companies reimbursed all the merger tax expenses that occurred to their top executives. However, things many not be the same this time. In a discussion with Fortune, Pfizer’s spokesperson, Joan Campion, said that his company didn’t intend to reimburse any such expense this time.
Going by what he said, Read may have to pay an extra tax payment of $1.95 million (taking into consideration 20% tax gain) and a surcharge of 3.8% for top-earning executives. Read enjoys some restricted compensation and stock option as part of Pfizer Inc. (NYSE:PFE) corporate policy, but he won’t have to pay any charge for these options.
Read withdrew base salary of $1.825 million for 2015, but his total compensation accounted for about $17 million.
Generally, board members and top executives of any company that expatriate via tax inversion, have to pay the excise tax of 15 percent. Even though Pfizer will relocate its head office to Ireland, Read won’t have to pay this additional 15% charge. The prime reason behind it is the nature of Pfizer-Allergan deal. Technically, it can’t be called an inversion. All the shareholders of Pfizer will hold 56% stake in the new company, which is lesser than the 60% stake required for the excise tax to come into effects.
Further details about this deal will be announced at a later date.