Years ago, in 2006, this column coined the expression ‘ghost estates’ after a drive from Castlebar to Dublin, where I saw row after row of these estates being built outside provincial villages. That year, over 90,000 houses were built in Ireland. I had no idea that this expression ‘ghost estate’ would find its way into the sorry lexicon of the era, but it did.
I wonder will the notion of ‘ghost companies’ have the same ring to it? A ghost company is a phantom legal entity set up with the explicit aim of avoiding taxes. It is the spooky, empty headquarters’ of a large company set up in Ireland which isn’t the headquarters of the company in reality but serves the purposes of having headquarter-style basic infrastructure, headed notepaper, a few exiled executives and a skeleton staff.
For the sake of the natives and good corporate PR, the ‘ghost company’ will make a minuscule jobs announcement – safe in the knowledge that this will be picked up by the national press and will disguise the real motive.
It may well have board meetings here. Sure, why not, since the hotels are nice, the golf is good and Dublin is a happening city with decent restaurants and great bars. The company may even spend a few quid to list on the Irish Stock Exchange and raise a bit of cash, if it feels like it here. But, in essence, the company is no more domiciled here than it is in Timbuktu. It’s a ghost company set up to pay a global tax game.
Earlier this week, the Financial Times published a brilliant article about how large companies, and particularly pharmaceutical companies, are avoiding billions of dollars of taxes by domiciling themselves in Ireland and then deploying the talent of smart Irish lawyers and accountants to set up grubby little arrangements that allow to them route profits through Ireland, the Netherlands and Bermuda, taking the mickey out of the US tax authorities in the process.
These are Ireland’s ghost companies.
Obviously the lower the tax these companies pay, the higher the return to their owners. (Of course, the revenue they pay this low rate of tax on is itself coming, in huge part, from taxpayers’ money in the form of state healthcare spending.)
If real countries were serious about getting these ghost companies to pay their fair share of tax, they could debar their health services from buying their medicines from the most egregious tax avoiders. I suspect this would put manners on them in jig time.
In time, the US authorities, needing the revenue, will act against these ghost companies but for the moment, let’s focus on what is happening in the huge pharmaceutical industry and how this is a microcosm of the global economy, exacerbating the equality dilemma.
Unless you’ve been living under a rock for the past several months, you’ll be aware that the latest manifestation of the global stock bubble is that pharmaceutical companies are using their overvalued stock prices as currency. They are buying other companies with this currency.
There has been an unprecedented merger and acquisition binge. Companies are buying up targets either to domicile themselves abroad and thus avoid paying US corporate taxes, or simply to buy up assets before someone else snatches potential targets, in a classic case of FOMO (Fear Of Missing Out) move. This mania is the corporate equivalent of getting on the property ladder. The sale of Elan last year was part of this process.
Here are a few highlights of the current deal frenzy.
- US giant Pfizer, in an apparent u-turn on organic growth/rationalisation, is potentially looking to buy the Anglo/Swiss pharma company AstraZeneca for $100 billion. The strategy is rapid growth via acquisition.
- The French company Novartis and Britain’s Glaxo are merging in a deal said to be worth $25 billion.
- The Swiss giant Sanofi is looking to offload $7-$8 billion of its older drug portfolio assets.
- Valeant, with private equity backing, is bidding around $50 billion for the fake boob and botox maker, Allergan. (Incidentally the original ghost estate column was written following a visit to Allergan’s factory in Castlebar.)
- Meda has rejected a $6.5 billion all-stock offer from Mylan.
And while this acquisition spree is a boon for shareholders, with the euphoric market rewarding both target and acquirer by sending their stock prices immediately higher, it is also great news for investment bankers, lawyers and accountants who are putting these deals together.
However, there is one group that is getting shafted: employees.
As the WSJ reports, when it comes to drug mergers, the stock price may rise and fall, but one thing is certain: layoffs. Take the case of Pfizer. According to the Wall Street Journal, since 2005, Pfizer has eliminated more than 56,000 jobs worldwide – a number roughly equal to the population of Limerick city.
And if indeed Pfizer pulls off its proposed headquarters-shifting acquisition of AstraZeneca, which is set to be the largest pharma M&A deal in history at $106 billion, then the total workforce of the two companies is sure to be far smaller than the sum of the parts.
Pfizer said last week it would achieve “synergies” with the AstraZeneca deal if it comes to fruition, including in the combined companies’ businesses in cancer and cardiovascular drugs. Pfizer didn’t quantify the expected savings.
Pfizer has squeezed cost savings out of past megamergers. After its $68 billion acquisition of Wyeth in 2009, Pfizer closed six of 20 research sites worldwide, including in New Jersey, New York and North Carolina. In Ireland, Pfizer currently has more than 5,000 employees across 13 sites.
Pfizer is not alone. Job cuts also could result from other recently announced deals, including an exchange of assets between Novartis AG and GlaxoSmithKline and Novartis’s plan to sell its animal-health division to Eli Lilly.
The bottom line is that since 2009, the pharmaceutical industry has announced more than 156,000 job cuts in the US alone, according to Challenger Gray & Christmas, a company that big firms hire when they’re laying off employees, to help them find new jobs.
And what else is threatening employees? Why, the Federal Reserve, of course. How could this be?
The trillions of dollars of QE have bypassed the economy entirely but made their way straight into the stock market, pushing up share prices, driving up the great M&A currency. In addition, thanks to very low rates, the cost of debt is so low that if stock is not an attractive purchase currency, the buyer can simply fund the deal with ultra-cheap debt.
This has enabled shareholders and management teams to jump headfirst into the merger and acquisitions frenzy, in the process laying off thousands.
It’s not hard to see that a combination of tax avoidance, aided and abetted by QE, is leading to mass lay-offs, making the shareholders richer and the taxpayers and workers poorer.
This is a process which is exacerbating inequality and is masked by the corporate phantoms that are Ireland’s ‘ghost companies’.
David McWilliams writes daily on international economics and finance at www.globalmacro360.com
Subscribe – where are you Adam?
David as you know the IFSC is polluted with these shell companies, number 5 Harbourmaster Place must be a modern day “Tardis”. Ireland is now well known as a Tax Haven, up there with Bermuda, Virgin Islands etc… with roughly 1 Trillion in US Multinational funds sloshing around outside the US in fear of the US Domestic 35% tax rate, see a recent post on ZeroHedge. We are also alerted to Apple who have had to issue bonds in the USA due to there cash position while they sit on approx. $55-60 Billion in accumulated profits off-shore. Our world is… Read more »
Another symptom of how the relationship between Capital and Labour in C21st is becoming terminally parasitic, rather than symbiotic. As the antics of the 1% reach a crescendo, “health-care” will become an unaffordable luxury for most people, yet the plutocrats/oligarchs will continue to reap the rewards of decades of health research which was made possible by the aggregate demand and tax contributions of the 99%. Health-care is another broken market. The same corporations that benefit from the health and sickness of ordinary citizens paying taxes to buy their drugs seek to exclude themselves from an honest accounting of their profits… Read more »
[…] Tax games of phantom firms | David McWilliams […]
Taxation We need to understand the primal meaning of this word to make a good decision in the present void . Taxation from its primitive origins in jungle economics means to capture and bring back to the village the spoils of the hunt .It would have been consumed immediately . In those days the victim was usually a wild animal .No animal was allowed to escape the claws of the hunter once caught . This is what fiscal taxation is today when the Minister delivers the Demand to pay , Subsequently primitive man evolved into husbandry and farming where the… Read more »
Hi David, “Unless you’ve been living under a rock for the past several months, you’ll be aware that the latest manifestation of the global stock bubble is that pharmaceutical companies are using their overvalued stock prices as currency. They are buying other companies with this currency” That is the most important paragraph you have published on this blog for as long as I have been reading it. You inadvertently show the solution to Eireuba’s problems even though you weren’t discussing the issue at all. More about this in a minute. The article is an excellent continuation of your writings in… Read more »
Subject is also topical on Bloomberg today, May 5th.
” U.S. Firms With Irish Addresses Get Tax Breaks Derided as ‘Blarney’ ”
Despite all the commentary including FT last week, it still has’nt come to a head.
Will it receive more attention this time ?
Had the previous FF administration in power consulted good wordsmiths and professional economists they could have invented a different tier currency reporting system of national reserves in units to be held as collateral against the Bonds owed by the State at the time thus delaying and or preventing these monies departing our shores and instead allowing them be traded in special Bond Reserve Markets pegged with the ECB and lead the world with their original insight .This would have allowed the State to channel these funds to develop the Oceans and Lands we own and exploit their resources . Everything… Read more »
Everything would be different if the Irish electorate stopped voting for the incompetent clowns that this country have for politicians. The Mandarin’s that are running the civil service at the moment also need to be replaced, and quickly too. In just under 3 weeks time we’re going to have the local and European elections and now is our chance to show our politicians that we’ve had enough of their incompetence by voting for non-party and other non-mainstream party candidates in these elections. It’s time for a complete change in thinking. If the message is not sent out now then you’ll… Read more »
Good Evening Ladies & Gentlemen.. Elections ? These are a illusion of choice..a illusion of freedom..nothing more ,nothing less.Their hasn’t been any choices in a long time…you have the illusion of choice…but no choice. Adam is right when he states their will be a protest vote..but alas it will be small…but I live in a hope…. Corporations get bigger..more profitable & have less regulation.Have lots of Dollars , yen & euros to throw around…Money to invest in a politicians future…more relevant in the U.S now..but what happens there , eventually comes here.. You , I ,they or us do not… Read more »
I’m afraid communism isn’t dead – just rebranded
Look at the amount of central planning we live under both here and increasingly even in the USA
Look at how much free choice we have vis the following
communism is alive and well and we don’t even realise it
frogs and water and all that stuff
Elections? I recently watched an excellent TV3 reconstruction of the 1916 Rebellion. I had not known that the Rebels fought both British and Irish soldiers in British uniform. Irish vs Irish. And that the locals actively sabotaged their Rebellion. After all the Rebels were radical-Radicals in extreme polar to the general population who were happy to take the King’s shilling. Perhaps that’s the truth, British Rule was actually quite pleasant all things considered, 800 years of genial relationships. Till these idealist Radicals messed it up for everyone by provoking the British authorities. Were it not for this unfortunate episode we… Read more »
I hope they died for an ideal rather than for their grubby fellow country men.
How it works here
“The trillions of dollars of QE have bypassed the economy entirely but made their way straight into the stock market” +1 and with no Real,‘quality’ alternatives of investment opportunities available in the now uncertain commercial battleground of stocks and shares, it’s the ‘steady’ Pharmas that get [over] fed ! Is Ireland’s future economic growth model and strategy linked inexorably to ‘bubbleicious’ Tech and [Bio] Pharma sectors? For sure FDI is currently playing ‘the lynch pin’ role in our economy, but what are Ireland’s long range growth policies? Will we still have to RELY so heavily on these ‘private’ companies like… Read more »
Tyler D with a frightening graphic here http://www.zerohedge.com/news/2014-05-07/janet-yellen-may-have-problem-explaining-slide As the intention and directionality of the 9/11 attacks was implicitly that of taking lives en masse, creating widespread fear, chaos and conflict,”fiscal consolidation” [code for grinding austerity] is gonna get worse and then we have the Single Resolution Mechanism,[the functional equivalent of letting rats into a granary]will sooon result in bail-in /or direct confiscation of bank deposits,to keep the heinous monetarist financial system (empire!) alive. it’ll never get that bad and wont happen here,right? Just wait! The principle of life is to grow,to develop and any policies that are not growth… Read more »
shatter the minister of injustice exits stage left eh!
Well i’m off for a shower anyway…my stopwatch is set for 5mins …yea,a ‘quickie’-in order to have some spare water in case i need to flush the toilet for a 3rd time today !!!
What a shaaam!
We’re being fed to the wolves!