Amgen, amid $10B fight with IRS, lands in Senate committee's tax probe

The Senate Finance Committee’s probe into U.S. drugmakers’ tax practices has intensified, as Amgen—already embroiled in an Internal Revenue Service (IRS) investigation over the transfer of U.S. profits to Puerto Rico—now finds itself in the crosshairs of the committee’s chair, Senator Ron Wyden.

Amgen has paid an average effective tax rate of just 12% over the past four years, Wyden wrote (PDF) in a Thursday letter to the company’s CEO, Robert Bradway. Now, the Democratic senator is asking for details on Amgen’s tax tactics as part of a wider investigation into the 2017 Republican tax law.

The committee's probe seeks to “uncover the full extent to which drug companies are able to exploit subsidiaries in low or zero tax jurisdictions to avoid paying taxes on U.S. prescription drug sales," Wyden wrote. Aside from Amgen, the investigation has targeted the likes of Merck & Co., AbbVie and Abbott Laboratories.

“We can confirm that Amgen received a letter from Chairman Wyden regarding the company’s tax practices," an Amgen spokesperson said over email. "We are reviewing the information requests contained in the letter and will respond,” he said. 

In the wake of the 2017 tax law, Amgen paid an effective tax rate of 12.1% in 2018, 14.2% in 2019, 10.7% in 2020 and 12.1% in 2021, Wyden contends. The senator aims to “understand how Amgen has consistently paid tax rates that are substantially lower than the U.S. corporate tax rate of 21%,” he wrote.

It isn’t entirely clear how Amgen pulled this off, Wyden notes, though “it appears that a significant factor is ‘foreign earnings resulting from [Amgen’s] operations in Puerto Rico,’” Wyden continued.

Income from Amgen’s Puerto Rico operations are considered foreign when it comes to corporate income tax, which means profits reported by Amgen in the U.S. territory aren’t taxed at 21%, the senator explained.

Instead, those Puerto Rico profits are taxed at a “much lower” foreign tax rate of 10.5% created by the 2017 Republican tax law, he added.

“As a result of these arrangements, there appears to be a substantial discrepancy between where Amgen generates prescription drug sales and where Amgen books profits from those drug sales,” Wyden said.

Last year, Amgen generated 70% of sales in the U.S., though it reported just 28% of its pretax income in its home country, Wyden said. Amgen pulled down U.S. sales of $18.2 billion in 2021, and it reported just $1.85 billion in U.S. pretax income over that same stretch.

This isn’t the first time this year Amgen’s Puerto Rico profits sparked controversy. Back in April, the company said it had received a notice of deficiency from the IRS, which proposed an increase to Amgen’s taxable income from the period between 2013 and 2015. The move would leave Amgen with a $5.1 billion bill, plus interest. On top of that, the IRS floated penalties of approximately $2 billion.

Before that, the IRS had demanded $3.6 billion in back taxes for Amgen's operations from 2010 to 2012. And the IRS is still looking at the company's tax situation for 2016 to 2018.

In April, Amgen didn’t go into much detail on the IRS’ complaints, though the agency seemed to be taking the company to task over its profit transfer practices. Amgen at the time said the IRS position “fails to adequately account for the importance” of its large Puerto Rico manufacturing unit.

Meanwhile, pharma majors Merck and AbbVie have also found themselves in the Senate Finance Committee’s firing line. Late last month, Wyden accused Merck of dodging billions of dollars in U.S. taxes by offshoring profits on Keytruda.

Also in July, the Finance Committee blasted AbbVie’s tax practices, too.

“A multinational pharmaceutical corporation with annual sales over $50 billion paid a lower tax rate than a postal service worker or a preschool teacher,” the committee’s report read. “It is unacceptable.”

Editor's note: This story has been updated with comments from Amgen.