Healthy Skepticism Library item: 15042
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Publication type: news
GlaxoSmithKline
The Guardian 2009 Feb 3
http://www.guardian.co.uk/business/2009/feb/03/2
Full text:
The title to more than 40 GlaxoSmithKline trademarks went to a factory in Puerto Rico, including the trademark for the top-selling diabetes drug Avandia.
The trademark for the newly launched breast cancer drug Tykerb was assigned to Ireland, another low-tax regime, in 2005, followed there by the firm’s Sensodyne toothpaste brand in January 2008.
In 2007, the Puerto Rico trademarks, including Avandia, were shifted on to the firm’s Irish operation in Cork. Glaxo’s production was phased out at SB Pharmco Inc in Puerto Rico after quality control problems.
The value of Glaxo’s trademarks, their intellectual property, has been estimated to constitute as much as 5% of the eventual selling price of a drug. The company explains in its most recent annual report: “Profits arising from certain operations in … Puerto Rico and Ireland are accorded special status and are taxed at reduced rates compared with the normal rates of tax in these territories. The effect increased earnings per share by 4.9p in 2007, 7.2p in 2006 and 2.7p in 2005.”
Helen Jones, Glaxo’s head of tax, told us: “It is a widespread and totally accepted practice for global companies to license out intellectual property in return for royalties which reflect the value of work carried out by the holder.”
Glaxo pays on average more than 80% of its tax to overseas countries rather than to Britain. Last year as a result, although the British official tax rate has been 30%, and Glaxo’s worldwide profits were £7.4bn, the company’s actual UK tax bill was only £450m. This is still a hefty sum, and it is to Glaxo’s credit that it declares its UK tax charge (although it still does not disclose how much UK tax is actually paid over in cash each year). But it is only a tiny fraction of the pharmaceutical giant’s profits particularly relevant to the amount of Glaxo’s initial research and development carried out by British scientists in Britain.
Glaxo says it is natural that most of its tax is paid overseas, where it has more than 80% of its 100,000 employees. The company claims more than 90% of its turnover is “not related to the company’s UK subsidiaries”. It is not clear how much more UK tax would be paid if the intellectual property created in the UK had been kept in the UK.
Glaxo has been embroiled in tax rows around the world, not only in the UK, but in Canada, Japan, and most of all the US, where it makes the most lucrative sales. In 2006, it finally agreed to pay the US £1.7bn to settle a huge dispute over sales of the ulcer drug Zantac and others produced in the Puerto Rico factories. The US claimed it was being cheated out of its fair share of global tax.
Transnational companies do sometimes find themselves caught in the middle of arguments between different countries about their respective share of the tax cake.
The US is also currently demanding another $680m, which Glaxo disputes, over attempts to deduct loan interest from Glaxo profits. The company was locked in a lengthy fight with the British tax authorities, described as being over “transfer pricing” and “controlled foreign company” issues, in which Glaxo was accused of piling up too many profits abroad.
Glaxo said last year that there were “wide differences in positions” between the company and HM Revenue & Customs, which might lead to litigation. But in June, the disputes were suddenly resolved “with no material impact on the expected tax rate for the year”.
This followed shortly after meetings between Glaxo executives and Gordon Brown, and public threats that Glaxo might relocate to the Republic of Ireland.
In 2006, Glaxo paid US £1.7bn to settle dispute over sale of drugs produced in Puerto Rico
