The U.S. taxman may come for pharma's foreign profits

Caution: Big Pharma's tax-avoidance tactics are in jeopardy. As Bloomberg reports, U.S. lawmakers are eyeing overseas profits--and the $7 billion-plus in taxes sidestepped by drugmakers last year--with changes in mind.

The right kind of tax reform could do a lot to bring corporate profits back to the United States for investment and job creation," Sen. Charles Grassley told the news service. "The current system provides an incentive for companies to keep money overseas indefinitely."

The drug industry isn't alone in shifting profits overseas to avoid taxes. But because of pharma's dependence on intellectual property, and rules allowing companies to assign patents and trademarks to subsidiaries in low-tax jurisdictions, drugmakers have been more successful than most. Last year, 6 top pharma companies saved $7.05 billion, up from $3.85 billion in 2003.

As Bloomberg notes, Merck ($MRK) and Johnson & Johnson ($JNJ) each saved about $2 billion in 2012 taxes this way. Pfizer ($PFE), Abbott Laboratories ($ABT), Bristol-Myers Squibb ($BMY) and Eli Lilly ($LLY) have stockpiled billions in cash overseas. None has hoarded as much as General Electric ($GE), which boasts $108 billion in foreign cash, but Pfizer has amassed $73 billion, and Bristol-Myers and Lilly each have $21 billion.

Pfizer in particular has found itself in the tax-tactic hot seat. The Securities and Exchange Commission asked the company last year to explain its U.S. losses, in light of the $15 billion in pre-tax profits it had recorded overseas. A few months later, Pfizer drew fire in the U.K. last year after reporting a 2011 operating loss, despite some $2.9 billion in sales there. (Pfizer said it had followed all the tax rules, and cited restructuring costs as one reason for the operating loss.) GlaxoSmithKline ($GSK) and AstraZeneca ($AZN) have settled transfer-pricing cases in the U.K.

Problem is, that cash is stuck overseas unless companies want to pay taxes to bring it home. But drugmakers have been lobbying for a holiday from that rule. In 2004, the U.S. government allowed companies to repatriate their foriegn cash penalty-free. Lilly and other drugmakers want Congress to do the same now, saying it would help them create jobs.

- read the Bloomberg piece