>For example, I've heard there's a substantial tax savings when investing in US R&D.
Yeah, but not that much savings. The calculation is complicated, but taxpayers usually don't recuperate more than 5-10% of their qualified research expenditures for the tax year. Not to mention the difficulty in evaluating and calculating precisely what business components qualify for the credit. Most firms spend only a fraction of their revenue on qualified research activities, so their profits generally dwarf QREs. Pfizer would have to spend something like a trillion dollars on R&D in order to repatriate all of their current offshore profits without paying any tax on it.
Let's take a concrete example. I'll use the regular research credit calculation since they've been in business long enough and have enough base years. They currently spend around $6.5bn on R&D, that's down from an average of $8bn in the prior five years. Let's assume all of that is qualified, even though it very well might not be due to the large number of exclusions in IRC sections 41 and 174. I'm too lazy to look up Pfizer's aggregate gross receipts in their financial reports, but a quick google search shows their annual revenue at around $50bn, which should be close enough and I'll pretend that's been consistent for the five preceding years. That's $8bn * 5 base years = $40bn aggregate base year QREs. Divided by $250bn base year aggregate gross receipts gives us a fixed based percentage of 16%, which happens to be the maximum allowable amount. We multiply that by the average aggregate gross receipts for the base years, giving us a base amount of $8bn. We then select the greater of the base amount or 50% of current year QREs ($3.25bn), so we pick the base amount. We then can take the credit for 20% of the excess of the current year QREs over the base amount, which in this case is negative $1.5bn, so Pfizer can't claim the credit at all.
Even if we were to fudge the numbers more optimistically in Pfizer's favor, they are looking at a best case tax credit in the range of a few hundred million dollars, when they have a couple hundred billion in profits that they need to repatriate. In order to repatriate that much money without paying taxes, Pfizer would need to incur massive losses. There simply aren't enough tax "loopholes" for Pfzier to deduct or credit its way to a zero tax rate.
Yeah, but not that much savings. The calculation is complicated, but taxpayers usually don't recuperate more than 5-10% of their qualified research expenditures for the tax year. Not to mention the difficulty in evaluating and calculating precisely what business components qualify for the credit. Most firms spend only a fraction of their revenue on qualified research activities, so their profits generally dwarf QREs. Pfizer would have to spend something like a trillion dollars on R&D in order to repatriate all of their current offshore profits without paying any tax on it.
Let's take a concrete example. I'll use the regular research credit calculation since they've been in business long enough and have enough base years. They currently spend around $6.5bn on R&D, that's down from an average of $8bn in the prior five years. Let's assume all of that is qualified, even though it very well might not be due to the large number of exclusions in IRC sections 41 and 174. I'm too lazy to look up Pfizer's aggregate gross receipts in their financial reports, but a quick google search shows their annual revenue at around $50bn, which should be close enough and I'll pretend that's been consistent for the five preceding years. That's $8bn * 5 base years = $40bn aggregate base year QREs. Divided by $250bn base year aggregate gross receipts gives us a fixed based percentage of 16%, which happens to be the maximum allowable amount. We multiply that by the average aggregate gross receipts for the base years, giving us a base amount of $8bn. We then select the greater of the base amount or 50% of current year QREs ($3.25bn), so we pick the base amount. We then can take the credit for 20% of the excess of the current year QREs over the base amount, which in this case is negative $1.5bn, so Pfizer can't claim the credit at all.
Even if we were to fudge the numbers more optimistically in Pfizer's favor, they are looking at a best case tax credit in the range of a few hundred million dollars, when they have a couple hundred billion in profits that they need to repatriate. In order to repatriate that much money without paying taxes, Pfizer would need to incur massive losses. There simply aren't enough tax "loopholes" for Pfzier to deduct or credit its way to a zero tax rate.