Gilead Sciences has to be galling to Pfizer CEO Ian Read. While Read had his own tax inversion plans deep-sixed by U.S. Treasury rules changes this year, Gilead has managed to cut its U.S. tax bill dramatically even as its U.S. profits soared.
That is the indication of a report released today from Americans for Tax Fairness, a group largely supported by labor. It shows that by moving the intellectual assets for hep C cure Sovaldi to Ireland, it was able to record $28.5 billion in profits overseas in 2015, a move that allowed it to avoid $9.7 billion in U.S. taxes it reported to the SEC, the report says.
Foster City, CA-based Gilead declined to comment.
Even as its profits have grown over the last few years with the introduction first of Sovaldi in 2014 and then Harvoni and most recently Epclusa, Gilead's U.S. effective tax rate has fallen significantly. According to its annual report, its net income has grown to $18.1 billion in 2015 from $3 billion in 2013. Gilead’s total tax bill has grown but its U.S. tax rate has fallen to 16.4% in 2015, compared to the U.S. federal statutory rate of 35%. It was 18.8% in 2014 and 27.3% in 2013. The report figures its foreign tax rate was 1%.
What Gilead is doing is entirely legal and a practice followed by many, many other U.S. companies. Allergan, with which Pfizer wanted to merge, got its Irish domicile through a tax inversion merger. Pfizer CEO Read had long talked about wanting to use a so-called tax inversion deal to reduce the company’s U.S. tax load, a move he said that would allow Pfizer to invest more in R&D.
But Jeremy Scott, editor-in-chief of commentary at Tax Analysts told the Washington Post, there is no question that U.S. companies have gotten more enthusiastic about the strategy. "People weren’t doing it as aggressively in the ‘90s as in the past five to 10 years," Scott said. “This is a recent trend."
While legal, it is controversial and opposed by many groups that see it as an unfair tactic by U.S. companies that have gotten great benefits by being based in the U.S. President Obama finally instructed the U.S. Treasury to see what it could do about the practice. Tax rule changes this year were enough for Pfizer to give up on its $160 billion merger with Allergan.
The merger with Allergan would have allowed the U.S. company to reduce its tax bill by using Allergan’s domicile in low-tax Ireland without having to change a nameplate on its New York headquarters. It had expected to notch down its effective tax rate to about 15% from last year’s 25% through the inversion, saving billions of dollars along the way. When the U.S. Treasury removed the tax benefit, Pfizer cancelled the merger, proof to critics that it was only ever about simply avoiding taxes.
The new report points out that while Gilead has cut its U.S. tax bill, American taxpayers have shelled out about $5 billion to cover its hep C drugs through Medicare and other federal programs, and at prices that have been highly criticized as exorbitant by many payers.
“Despite all the benefits Gilead has received from American taxpayers, Congress maintains a loophole-ridden tax system that has allowed the corporation to dodge the taxes that pay for those benefits, leaving taxpayers to pick up its tab,” Frank Clemente, executive director of the group said in the report.
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