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Pfizer Could Remain In Dow After AstraZeneca Tax Scheme

Tickers in this article: AZN PFE

NEW YORK (TheStreet) - Those outraged by Pfizer's plan to move to Britain as part of a $100 billion acquisition of AstraZeneca may be better off calling their brokers than their Congressmen. After all, even the most passive retirement investors are subtly helping to make the proposed off-shoring of Pfizer possible.

Even if Pfizer moves to the U.K. as part of a strategy to lower its overall corporate tax rate, the company is likely to remain a component of both the S&P 500 Index and the Dow Jones Industrial Average (DJIA). Currently, the S&P 500 and DJIA appear to give U.S. companies the ability to move their domicile to lower-tax jurisdictions without losing their eligibility for either index.

If the average retirement investor in a S&P 500 or DJIA index is outraged by the flight of corporations from U.S. shores, they might be even more incensed to know their dollars are tacitly a part of the problem.

On the other hand, if the trillions of dollars that go to stock indices like the S&P 500 and DJIA had a voice in corporate governance and chose to exercise that voice against a trend of "re-domiciling" away from the U.S. for tax purposes, it could have a meaningful impact. Being a member of the S&P 500 and DJIA is likely of critical importance to Pfizer's management and Board of Directors given that both indices open the company to one of the biggest investor bases in the world.

Would it be worth it for a CEO to lose a wide spectrum of U.S. retirement and index investors just to drive a five percent reduction in annual corporate taxes? That might be a tough question for Pfizer Chairman and CEO Ian Read to consider. It might also complicate Read's pitch of the AstraZeneca acquisition and "re-domicile" of Pfizer.

Thankfully for Pfizer and Read, it is unlikely they would need to prepare for an exit from the S&P 500 or the DJIA in moving to the U.K.

The S&P 500 Index requires that a company be considered a U.S.-domiciled firm for it to be listed on the popular index, in addition to other criteria on market capitalization, SEC registration, and New York Stock Exchange or Nasdaq listing.

However, the Index Committee for the S&P 500 reserves the right to treat companies domiciled out of the U.S. for tax purposes as a U.S.-based company, allowing firms headquartered in Ireland and the U.K. to be a part of the popular index.

"In situations where the only factor suggesting that a company is not a U.S. company is its tax registration in a 'domicile of convenience' or another location chosen for tax-related reasons, S&P Dow Jones Indices normally determines that the company is still a U.S. company," McGraw Hill , the owner of S&P Dow Jones Indices, states on its website.