Republican presidential candidate Donald Trump has blasted the co-called tax inversion deal involved in Pfizer’s takeover of Allergan as "disgusting".

Democratic presidential candidates Hillary Clinton and Sen. Bernie Sanders have also criticised the merger. Sanders said the deal "would be a disaster for Americans who already pay the highest prices in the world for prescription drugs," while Clinton said US taxpayers would be left "holding the bag",

Pfizer is proposing the largest inversion deal of all time, a $160 billion deal to move its tax address from the United States to Ireland by buying and merging into Allergan, a competitor that is registered in Ireland. As a result, the new company will pay a tax rate of 17-18% on profits instead of Pfizer's current effective tax rate of about 27%.

In an editorial (see below), the New York Times thundered: “The $160 billion deal to combine Pfizer and Allergan, the maker of Botox, does not appear to be illegal. But it should be. This merger is a tax-dodging manoeuvre that enriches shareholders and executives while shortchanging the public and robbing the Treasury of money that would pay for a host of government programmes, including education, scientific research and other services that also benefit corporations.”

The US Treasury Department's regulations bar corporations from inversions if the shareholders of the old US parent company own at least 60% of the shares of the new foreign company. In the proposed Allergan-Pfizer deal, the shareholders of Allergan will own 44% of the merged company, while Pfizer shareholders will own 56%.

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Both companies already have multiple operations in Ireland, with as Pfizer's Grange Castle development lab (pictured).

The deal is the biggest in the health sector to date and the biggest merger of 2015. It will play out by Pfizer paying 11.3 of its shares for each Allergen share. The purchase will also include a cash component, covering 10% of the deal. The deal values Allergan's shares at a 27% premium to where the stock traded in late October before news of the merger leaked.

Pfizer and Allergan will face competition scrutiny from US and European regulators. The deal is also dependent on Allergan's divestiture of its generics business to Teva Pharmaceuticals, which is due to occur in early 2016.

Pfizer CEO Ian Read and Allergan CEO Brent Saunders will combine forces to manage the new medical giant, with Read taking over as CEO and Saunders moving into a senior role focusing on operations and integration. The combined company will have yearly sales of $60 billion, about $20 billion more than the closest competitor.

NEW YORK TIMES EDITORIAL

The $160 billion deal to combine Pfizer and Allergan, the maker of Botox, does not appear to be illegal. But it should be. This merger is a tax-dodging manoeuvre that enriches shareholders and executives while shortchanging the public and robbing the Treasury of money that would pay for a host of government programmes, including education, scientific research and other services that also benefit corporations.”

Pfizer, with a market value of nearly $200 billion, will be acquired by the smaller Allergan, which is run from New Jersey but technically headquartered in Ireland. This will allow Pfizer, which is based in New York, to pass itself off as Irish as well. Once the paper shuffling is complete, much if not most of Pfizer’s earnings — including those that are made in the United States — will be taxed at global tax rates that are generally lower than American tax rates.

In recent years, dozens of American companies have used similar tactics, known as inversions, to reincorporate in Ireland, Britain and other countries with lower corporate tax rates than those in the United States — at a cost to the Treasury conservatively estimated at $20 billion over 10 years. Pfizer’s merger is by far the largest such move.

'The only thing Pfizer has to lose is its tax obligations'

But if it’s a loss for taxpayers, it’s a great deal for Pfizer. As with other companies that have “inverted,” the only thing it has to lose is its tax obligations. Inverted companies almost invariably keep their headquarters and top executives in the United States. They remain listed on United States-based stock exchanges, where they raise capital under the protection of American securities’ laws. The newly combined Pfizer Inc. and Allergan P.L.C., for instance, will be renamed Pfizer P.L.C. and trade under the ticker symbol PFE, Pfizer’s current symbol, on the New York Stock Exchange, according to The Wall Street Journal.

In addition, inverted companies continue to enjoy the protection of patent laws in the United States, as well as their connections, official and unofficial, with federal research agencies — all of which are crucial to drug-company profits. Contrary to popular belief, much high-risk, pathbreaking research and development can be traced not to the big drug companies but to taxpayer-funded research at the National Institutes of Health.

Traditionally, corporate taxation was a way to repay the public for benefits companies received from federal support. But in recent decades, corporate taxes as a share of federal revenue have shriveled. Inversions will only worsen that trend, effectively bolstering corporate profits at the expense of the public.

Pfizer executives, and the executives of inverted companies, don’t put it that way. They say they cannot remain competitive if they have to pay tax on profits at the relatively high United States top rate of 35 percent.

That claim does not stand up. American multinationals routinely take advantage of write-offs that reduce the top rate to a much lower level. Moreover, even an inverted company is supposed to pay tax on earnings generated in the United States at American rates. But by having a foreign parent company in one country — Ireland in this case — while remaining headquartered in the United States, a company can lower its tax bill through an accounting gimmick known as “earnings stripping,” in which profits from the United States are shifted to the foreign parent in the lower-taxed country, thus reducing the American tax bill.

It is not hard to write legislation and draw up rules outlawing inversions, and bills currently in Congress could put a stop to them quickly. What is lacking is political will to tell powerful corporate interests to stop. The Treasury Department under President Obama has issued rules to curb the practice. But the Pfizer and Allergan hookup is expected to get around these constraints. The administration could do more, but even more aggressive executive action would not be as effective as robust legislation.

Reincorporating abroad is a sophisticated variation on the old practice of avoiding corporate taxes by renting a post office box in the Caribbean and calling it corporate headquarters. Congress put a stop to those tactics in 2004. It is past time to shut down inversions as well.