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August 7, 2006
Newsweek: Johnson & Johnson to Reap $440 Million in Tax Savings in Acquisition
Interesting article in this week's Newsweek: A Tax Band-Aid For J&J's Big Deal, by Allan Sloan:
How would you like to be able to buy Listerine or Rolaids or Sudafed and get Uncle Sam to give you a tax break of 25 percent on the purchase price? You can't do that, of course. But Johnson & Johnson, the giant health-care company, can. No, it's not buying bottles or packages of this stuff. It's buying the products themselves (as well as brands like Benadryl, Neosporin and Visine) from their current owner, Pfizer. J&J's tax savings on the deal will offset at least a quarter of the $16.6 billion cost, possibly much more.
That's because the deal is set up as an asset purchase, and J&J is paying with cash. That makes the purchase price tax-deductible to J&J. The deal is taxable to Pfizer—but as we'll see, J&J's tax savings exceed Pfizer's tax costs. By my math, J&J stands to save $440 million in federal and state income taxes annually for 15 years.
For the details on Sloan's tax computations, see here.
August 7, 2006 in News | Permalink
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Johnson & Johnson is buying Pfizer's consumer products unit, and Newsweek's Alan Sloan (H/T: TaxProf) has figured out that the... [Read More]
Tracked on Aug 7, 2006 10:17:48 AM
Comments
The big tax avoidance trick that Allan Sloan is flagging is that J&J will be able to amortize intangibles over 15 years--in other words, Sloan seems to be criticizing Section 197. I would be curious to see what Sloan thinks would be a fairer result--that businesses not be able to amortize intangibles at all? What J&J were not purchasing (primarily) intangibles--would Sloan criticize J&J for depreciating machinery?
This is of a piece with Sloan's earlier work, in which, for example, he called the New York Times a tax dodger for making a Section 338(h)(10) election on its purchase of About.com.
Posted by: Sarah Lawsky | Aug 7, 2006 9:54:27 AM
