Glaxo in Us Tax Row
Shares in GlaxoSmithKline today fell amid reports that Europe's biggest drug company faces allegations of tax avoidance in the US over its best-selling ulcer drug Zantac.
The Internal Revenue Service (IRS) has not formally charged Glaxo or said in court papers how much the company might owe in back taxes. But in its annual report, Glaxo disclosed potential worldwide tax liabilities and charges of £1.6bn.
According to the Wall Street Journal, both Glaxo and the IRS consider litigation likely over taxes on an entire decade of US revenue from six top-selling drugs. Glaxo says US sales of the drugs generated $29.5bn (£20.1bn) between 1989 and 1999, the years in contention.
The dispute between the US tax authorities and Glaxo are so serious that it has been taken up at government level.
Glaxo said in a statement: "The company is hopeful that the current government to government discussions between the US and the UK tax authorities will resolve these tax issues."
As part of the dispute, the IRS and Glaxo plan to begin deposing Sir Paul Girolami, the company's 76-year-old former chairman, in case he becomes infirm or dies if a trial goes ahead.
The case grew out of an IRS audit that began in 1992, the Journal reported.
At the core of the dispute are IRS allegations that Glaxo's American subsidiary, GlaxoSmithKline Holdings (Americas) Inc, overpaid its European parent for the drugs to artificially reduce profits in America and cut its US tax bill.
Known as "transfer pricing", the practice is common among multinational companies to minimise tax payments. But in this case, the Inland Revenue has sided with Glaxo, saying that the company's profit has already been taxed in Britain and that any US move to collect money would amount to double taxation.
"Our view is that the profits reported by the US subsidiaries and taxed in the US fairly reflect the activities carried out in the US operations," Glaxo said. "And we continue to believe based on external advice that we have made adequate provision for any tax liability that could potentially arise from disputes with tax authorities."
In mid-morning trading, Glaxo shares slid 25 points or 1.7% to 1384.5p.
The Internal Revenue Service (IRS) has not formally charged Glaxo or said in court papers how much the company might owe in back taxes. But in its annual report, Glaxo disclosed potential worldwide tax liabilities and charges of £1.6bn.
According to the Wall Street Journal, both Glaxo and the IRS consider litigation likely over taxes on an entire decade of US revenue from six top-selling drugs. Glaxo says US sales of the drugs generated $29.5bn (£20.1bn) between 1989 and 1999, the years in contention.
The dispute between the US tax authorities and Glaxo are so serious that it has been taken up at government level.
Glaxo said in a statement: "The company is hopeful that the current government to government discussions between the US and the UK tax authorities will resolve these tax issues."
As part of the dispute, the IRS and Glaxo plan to begin deposing Sir Paul Girolami, the company's 76-year-old former chairman, in case he becomes infirm or dies if a trial goes ahead.
The case grew out of an IRS audit that began in 1992, the Journal reported.
At the core of the dispute are IRS allegations that Glaxo's American subsidiary, GlaxoSmithKline Holdings (Americas) Inc, overpaid its European parent for the drugs to artificially reduce profits in America and cut its US tax bill.
Known as "transfer pricing", the practice is common among multinational companies to minimise tax payments. But in this case, the Inland Revenue has sided with Glaxo, saying that the company's profit has already been taxed in Britain and that any US move to collect money would amount to double taxation.
"Our view is that the profits reported by the US subsidiaries and taxed in the US fairly reflect the activities carried out in the US operations," Glaxo said. "And we continue to believe based on external advice that we have made adequate provision for any tax liability that could potentially arise from disputes with tax authorities."
In mid-morning trading, Glaxo shares slid 25 points or 1.7% to 1384.5p.
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