By Denise Roland 

LONDON--If Pfizer Inc. pulls off its $155 billion proposed tie-up with Allergan PLC, the combined giant will reap the benefits of Ireland's lower taxes.

But what does Ireland get--apart from the bragging rights to playing host to the world's largest pharmaceutical company?

Irish politicians and businessmen have welcomed the news, but others have raised doubts over how much the country stands to gain from the flurry of multinationals flocking there for tax benefits. Dublin isn't likely to reap a big tax windfall itself from the move, and with both companies having sizable workforces in Ireland already, the deal raises the specter of job losses.

Pfizer employs more than 3,000 people in Ireland, across several manufacturing sites and some other operations. Allergan is also a major employer, with around 2,000 Ireland-based staff.

Pfizer's move is unlikely to result in any immediate extra investment in Ireland, but some hope that the change of address will bring side benefits. Fergal O'Brien, head of policy and chief economist at Ibec, which represents Irish businesses, said he hopes the "shop window" opportunity of more visits from Pfizer's top brass will "create greater awareness of what Ireland can offer."

Still, any upside from having top executives visit Ireland could be offset by job losses following the deal. Pfizer said Monday that it expected to cut more than $2 billion from its operational cost base in the three years following the merger. A spokesman for Ireland's finance minister, Michael Noonan, said the only "major concern" was that the deal "would result in an increase in employment here rather than a decrease."

Pfizer has said its combination with Allergan, structured as a so-called inversion, would trim its effective tax rate to about 17% or 18% from roughly 25%. But that doesn't mean Ireland's Exchequer will necessarily get any more tax euros from Pfizer than it already does.

Around 80% of Ireland's total corporation-tax revenue comes from multinational companies running operations in the country, with Pfizer already one of the big contributors. Under Irish law, corporation tax must be tied to real economic activity--companies can't simply funnel their global profit through Ireland because they are based there.

John Fitzgerald, adjunct professor of economics at Trinity College Dublin, said it would be virtually impossible for Pfizer to book significantly more profit in Ireland than it already did. Pfizer's world-wide activities were "unlikely to be brought within the Irish tax remit," he said, adding: "They would need a bloody big new fig leaf to cover world-wide profits."

What is more, pharmaceutical companies based in Ireland are increasingly shifting profit elsewhere, according to official figures. That is likely because other jurisdictions such as Bermuda are more attractive for mobile assets such as intellectual property, according to Prof. Fitzgerald. Nonetheless, the Irish wage bill for the pharmaceutical industry has remained more or less stable, indicating that despite profit moving elsewhere, Ireland isn't losing out to lower-tax jurisdictions for jobs and investment.

Welcoming one of the largest U.S. companies to Ireland's shores could also have diplomatic ramifications. Ireland's Mr. Noonan on Monday stressed that the government played no part in enticing Pfizer to the Emerald Isle. "They're obviously doing it for tax advantages because Allergan have their corporate headquarters in Ireland...but we're not pushing for an inversion," he said. Even so, disgruntlement in Washington could cast a shadow over one of America's strongest relationships.

"A lot of other countries are cross," said Prof. Fitzgerald. But "if there were huge benefits to Ireland, you might put up with the irritation."

Write to Denise Roland at Denise.Roland@wsj.com

 

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(END) Dow Jones Newswires

November 24, 2015 08:18 ET (13:18 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
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