If nothing else, Pfizer (PFE) is extremely diligent about anything involving taxes.
The big drug maker, which raised a national ruckus by pursuing acquisitions designed to lower its tax rate, has engaged in another showdown of sorts with the US Department of Treasury. The latest dispute however, involves decidedly lower stakes — nearly $8.3 million in interest that Pfizer claims it’s owed on a $500 million overpayment that was noted on its 2008 tax return.
The outcome may be inconsequential to investors who track a company that generated nearly $49 billion in revenue last year. Yet the dispute underscores the extent to which every dollar counts when a receivable is at stake. And the events may also resonate with anyone who has ever had more than routine dealings with the US Internal Revenue Service.
The company and the IRS first began squabbling over the fate of a half dozen refund checks that were to have been issued in October 2009 to cover the overpayment. But something went awry on the way to the mailbox — the checks never showed up, according to a lawsuit that Pfizer filed last March in federal court in New York.
A puzzled Pfizer asked the IRS for an explanation and claims that an IRS employee acknowledged to one of its employees that the checks were issued, but then it canceled and never sent them. By March 2010, however, the refund checks arrived. But time is money, after all, and the Pfizer team decided the IRS should have paid interest for the five months when the $500 million was out of reach.
So the drug maker filed a claim with the IRS for the interest in March 2013. But the IRS refused to pay and offered an explanation that riled the drug maker. The agency maintained the checks were, indeed, sent to Pfizer back in October 2009 and suggested the company was remiss in failing to provide the appropriate address to the IRS in the first place, according to the lawsuit.
In its lawsuit, Pfizer argued that it never had a problem receiving any other refund checks, suggesting the IRS had the correct address all along. The lawsuit, however, does not detail any subsequent attempts Pfizer may have made to obtain the interest, and there was no explanation for why the company waited until 2013 to do so. We asked Pfizer for comment and will pass along any reply.
For its part, the federal government argued in a 19-page memo filed late last week that the case ought to be dismissed or at least transferred to another court where such claims should be heard. But there was no mention in the July 15 memo about whether the IRS properly mailed the refund checks.
This is only the latest battle between the big drug maker and the proverbial taxman.
Twice in the past two years, Pfizer unsuccessfully attempted a so-called tax inversion, which involves buying another drug maker with an overseas address in order to lower its US corporate tax rate. The first deal involved AstraZeneca (AZN), which is based in the UK, and the other involved Allergan (AGN), which is headquartered in the United States but domiciled in Ireland. Both countries have lower tax rates than the US.
Although the US tax code permits such maneuvering, Pfizer was widely criticized for being unpatriotic, since it would continue to enjoy the benefits of operating in the US, while paying fewer taxes. Last April, the Treasury Department issued new rules that made inversions more difficult, effectively nixing the Pfizer bid to acquire Allergan.