AstraZeneca ($AZN) has put a long-running tax dispute to rest. And paradoxically, the company's tax bill will actually boost its earnings this year. The drugmaker reached a deal with UK and U.S. officials to pay $1.1 billion in back taxes--but it had budgeted $2.3 billion for the purpose. The company will immediately release $500 million of that back into its books, the Wall Street Journal reports.
The tax settlement relates to transfer pricing, or the prices internal business units charge one another. Some companies have used transfer pricing to concentrate profits in low-tax-rate countries and to assign expenses to higher-rate jurisdictions, to cut down on the amount of taxable revenues there.
AZ already made one deal with Britain's tax authorities in a transfer pricing dispute, which involved a £505 million payment. This new settlement rids the company of another overhanging tax liability. Under the deal, the U.K. will issue a refund--amount undisclosed--to AstraZeneca, which will in turn pay an undisclosed amount to the U.S.
The $500 million immediate boost will raise first-quarter earnings by about the same amount, and AstraZeneca predicts core EPS of $6.90 to $7.20 for the year, compared with previous estimates of $6.45 to $6.75.