Pfizer, Merck and Johnson & Johnson shifting profits to avoid billions in tax payments each year: report

Big drugmakers have faced scrutiny on their tax structures and payments before, and now a new report from Oxfam International lays out a host of complaints about how leading pharma companies are avoiding billions in payments annually by moving profits to tax havens.

In a new report, Oxfam concludes that Pfizer, Merck, Johnson & Johnson and Abbott dodge $3.7 billion annually—$2.3 billion in the U.S. alone—by shifting profits to tax havens, where subsidiaries pay a lower rate. The organization looked at financial filings from the companies from 2013 to 2015 and found that profit margins were on average 5% in developing countries, 7% in advanced countries and 31% in tax havens.

What’s more, the industry spends more than any other on lobbying to “give price gouging and tax dodging a veneer of legitimacy,” the authors wrote. Oxfam, an international organization fighting global poverty, notes that its info “is far from complete,” but argues the “pattern is consistent.” Importantly, the organization isn't alleging anything illegal.

A representative for Abbott said the report is “misleading on a number of fronts, particularly relative to the nature of our pharmaceutical business, which exclusively sells off patent, affordable, high-quality, generic medicines.” Abbott split off its branded drug business into AbbVie back in 2013. The company now sells generics in emerging markets. He said Abbott is a “responsible and transparent tax payer, paying all of its taxes owed in every country in which it operates around the world.”

A Pfizer spokeswoman said the company "abides by all accounting and tax laws wherever we do business and pays all taxes due.” A Merck representative said the company "complies with all tax rules on a worldwide basis." Johnson & Johnson didn’t immediately respond to a request for comment.

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It isn’t the first time drugmakers have come under scrutiny for their tax payments. In June, a Reuters investigation found that AbbVie’s staggeringly low 9% tax rate projection for 2018 is a result of the way it holds Humira patents in Bermuda, which has no corporate taxes. According to the report, AbbVie has for years run a loss in the U.S., even as U.S. sales have soared. Under the Trump administration’s tax changes, profits from tax havens can be taxed by the U.S. at a rate of 10.5%, and U.S. losses can drive the figure lower, the news service reported.

And in 2016, Americans for Tax Fairness released a report that concluded Gilead recorded $28.5 billion in profits overseas in 2015 as sales for its hepatitis C drugs reached new heights in the U.S., allowing the company to avoid nearly $10 billion in U.S. taxes. At the time, the company declined to comment.

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Oxfam said both governments and corporations are to blame for the situation. As one suggestion, the organization said country-by-country reporting of revenue, profits, taxes, employee base and assets would help provide transparency.

The organization additionally called on companies to pay taxes based on actual economic activity, and to use their influence to “shape a more equitable tax system for sustainable and inclusive growth.” Additionally, it urged governments to force more transparency on taxes and R&D costs.