In 2017, a law passed during the administration of former president Donald Trump dropped the corporate tax rate for companies in the United States from 35% to 21%. But in reality Big Pharma companies are paying much less, according to a report from Senate Finance Committee chairman Ron Wyden (D-Oregon).
Data from 2020 show that the country’s seven largest pharmaceutical companies paid an average rate of 11.6% that year. The number was down from 19.6% in 2016, before the law was enacted, according to the senator.
Drugmakers are pulling this off by reporting that 75% of their profits came from overseas, according to the committee’s most recent update of its ongoing investigation into pharma tax practices.
Drugmakers get a large portion of their sales—and profits—from the lucrative United States pharmaceutical market. But they often run those profits through their foreign subsidiaries based in low-tax countries.
A review of the annual reports of the United States' top seven pharma companies by revenue in 2021 shows (PDF) that Pfizer (7.6%) and Johnson & Johnson (8.3%) paid the lowest effective tax rates in 2020, the committee said. Merck (11%), Amgen (12.1%), AbbVie (12.5%), Bristol Myers Squibb (13.4%) and Abbott (13.9%) followed in order.
Reporting profits overseas “allows these hugely profitable companies to pay tax rates lower than many middle-class Americans,” Wyden wrote.
The committee’s memo came out before a Senate hearing on Thursday of last week as the committee discussed its findings, with Wyden criticizing the companies for their lack of transparency.
“We asked five Big Pharma companies for answers to questions that really are pretty straightforward—Where do you make your sales? Where do you report your profits? Where do you stick your intellectual property?” Wyden asked. “These are not nuclear secrets, but Big Pharma pulled out all the stops to keep their details in the shadows.”
The memo is an interim look at recent findings and will be followed by a full report later this year. It will include a deeper review of the tax practices of Pfizer and J&J. The committee said it recently received data from the Joint Committee on Taxation pertaining to the companies.
Last year, the committee reported that Merck “located 85% of its profits in foreign jurisdictions in 2021.” The investigation found that Merck reported $1.85 billion in local pretax income while the company raked in $22.4 billion in sales in the U.S.
Another report from the committee found that AbbVie paid just 1% of its 2020 taxable income in the U.S. Amgen also has come under scrutiny from the committee for shifting revenue to offshore subsidiaries.
The committee has yet to find wrongdoing by any of the companies. But it has supplied Wyden with talking points as he continues to target the industry and his opponents in Congress.