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Big Pharma’s tax-dodging history: Actavis ‘inversions’ won it billions in savings on American taxes

Actavis lay-offs should come as no surprise: Teva’s takeover statement had announced it wanted to ‘save costs’ by achieving efficiencies

matthew_vella
Matthew Vella
29 November 2016, 9:00am
Actavis in Malta registered turnover of €105 million in 2014, and an €18 million pre-tax profit
Actavis in Malta registered turnover of €105 million in 2014, and an €18 million pre-tax profit
The clues to the prospective lay-offs at generics pharma company Actavis were already evident five months ago when multinational Teva acquired the company and announced it would be downsizing operations.

But it was artful in how it said it would be achieving its savings.

Ralph Cassar, the Green Party’s secretary-general, was the only voice at the time of Teva’s acquisition of Allergan’s generics business, Actavis Generics, to have read between the lines of Teva’s plans for cuts.

An industrial chemist by training, Cassar had then pointed out that Allergan, which has a history of multiple acquisitions of pharmaceutical companies, was centred around achieving savings on tax through its residence in Ireland.

In the statement on acquiring Allergan’s generics company, Erez Vigodman, Teva president and CEO, said Teva expected “to achieve cost synergies and tax savings of approximately $1.4 billion annually [with] the savings to come from efficiencies in operations, G&A, manufacturing and sales and marketing”.

Allergan plc divested itself of its generics business – which included Actavis Global Generics and the Netherlands-based Medis – for $33.4 billion in cash and $5.4 million in Teva shares.

The 200 lay-offs announced this week by Actavis – which runs two manufacturing facilities in Bulebel and Hal-far – follow on similar redundancies in the factory’s history. Back in 2014, some 110 employees at Arrow Pharm in Hal Far were also at risk of redundancy following the acquisition of Actavis by Watson Pharmaceuticals (which became known as Actavis plc in 2012).

The restructuring was due primarily to a 50% reduction in packaging volumes at the facility, as well as a drive to make the Hal Far site more “cost competitive” in the face of aggressive global competition.

In Malta Actavis employed around 850 people in 2014, having dismissed some 100 workers the year before when it closed down some of its manufacturing units and its R&D department.

Ralph Cassar was the only voice at the time of Teva’s acquisition Actavis Generics, to have read between the lines of Teva’s plans for cuts
Ralph Cassar was the only voice at the time of Teva’s acquisition Actavis Generics, to have read between the lines of Teva’s plans for cuts
And the year’s takings were not disheartening either: although not as positive as in 2013, Actavis in Malta registered turnover of €105 million in 2014, and an €18 million pre-tax profit. The year before, it booked €113 million in sales and €20 million in pre-tax profits. Still, both years were far superior to 2012, when with €103 million in sales it made ‘only’ €11 million in pre-tax profits. 

But behind the global takeovers, lies a history of deals being effectively funded by US taxpayers, thanks to tax-dodging relocations that allowed Actavis, today renamed Allergan plc, amass great savings.

Actavis itself was built by a rapid succession of deals, starting in 2012 when Watson Pharmaceuticals, of New Jersey, bought Actavis – then a Swiss company – for $6.5 billion and moving its tax domicile to Ireland.

Then in 2015, the company Allergan, which made Botox, and was based and paid taxes in Irvine, California, was bought by Actavis for $66 million.

All these moves allowed Watson to create larger companies while reducing its exposure to the United States tax rate.

With these so-called inversions, an American company buys a foreign rival and then relocates to a new home abroad with a lower tax rate – something the Obama administration was keen to fight by adopting new rules that would make the deals less economically attractive to buyers and dissuade shareholders.

Actavis got some of the benefits of reincorporating in a lower-tax country, such as a $25 billion deal to buy the New York-based Forest Laboratories and save on taxes after becoming an ‘Irish’ company. When it bought Allergan, analysts estimated that with the Irish tax rate of 16%, Actavis could shave $240 million to $370 million off Allergan’s tax bill in 2015.

Cassar was clear about the tax savings game in 2014 with these prophetic words.

“Actavis, Arrow, Watson... the same shareholders, same US company. These have benefitted over the years from massive tax breaks, tax holidays and tax incentives, and other incentives such as payments for training and R&D out of national funds... in other words ‘corporate welfare’.

“The company is doing very well with revenues and profits increasing year after year, but corporate greed is never satisfied… It is time to ask for them to pay back the tax breaks and other public funds they sucked up. A textbook case of corporate greed. Socialising losses and privatising profits.”

With the Maltese government now intervening to save the 200 jobs at Actavis by making sure the workers can find alternative employment, Alternattiva Demokratika – the Green Party, remains critical of the way deregulated markets are allowing such global lay-offs.

“The layoffs by Actavis’s new owners Teva are proof of the damaging effects of a globalisation based on greed. It is yet another example which shows the urgent need for EU governments, the European and national parliaments, to come together and collectively regulate the runaway neoliberal system in which huge, short-term profits and shareholder value come before social responsibility and the just distribution of wealth.”

AD said Actavis was consistently making huge profits, and said only a tax on financial transactions and capital flight could compensate for such corporate ruthlessness. “It’s a game of Russian roulette on the stock markets at the expense of the livelihood of workers. Teva’s ‘consolidation’ is just another excuse to make the super rich richer,” AD said.

matthew_vella
Matthew Vella is executive editor at MaltaToday.
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