NEW YORK – The six biggest U.S. drugmakers avoided paying $7.05 billion in U.S. taxes last year by shifting their profits overseas. Thats almost double the amount they saved using the same strategy 10 years earlier, according to data compiled by Bloomberg.
For years, multinationals such as Pfizer, Merck & Co. and Johnson & Johnson have been moving ownership of patents and trademarks to subsidiaries in low- or no-tax countries. This has allowed drug companies, as well as businesses in several other industries, to skirt paying U.S. taxes on sales of those products unless the money is returned home.
While the practice of shifting assets and profits overseas is legal, that could change. As the trend continues to grow in an era when the government is desperate to raise revenue, the strategy has drawn the ire of legislators eager to shut it down.
The right kind of tax reform could do a lot to bring corporate profits back to the United States for investment and job creation, Sen. Charles Grassley, R-Iowa, said in an email. The current system provides an incentive for companies to keep money overseas indefinitely.
Merck and J&J were the biggest drug company winners in 2012 with savings of about $2 billion each attributable to the strategy, according to regulatory filings.
The reports by the six drugmakers, filed last month, come as U.S. lawmakers are debating potential tax code changes designed to shrink the federal budget deficit and crank up job-producing business activity in the United States.
Eighty-three companies have stockpiled $1.43 trillion in untaxed profits in foreign countries, according to data compiled by Bloomberg. The leader is General Electric, which said in a Feb. 26 filing it has $108 billion sitting overseas.
Among drugmakers, Pfizer reported having $73 billion abroad, Abbott Laboratories $40 billion and Bristol-Myers Squibb and Eli Lilly $21 billion each.
Republicans such as Grassley and Michigans Dave Camp, chairman of the House Ways and Means Committee, want to encourage companies to repatriate their stockpiles in the hope that bringing the money home will lead to investment and job creation.
A proposal by Camp would exempt earnings from U.S. taxes and limit the ability of companies to shift their profits into low- or no-tax countries.
Jacob Lew, sworn in Feb. 28 as President Obamas Treasury secretary, told Republicans on the Senate Finance Committee that he saw common ground that could be considered on the issue.
The federal corporate income tax in the U.S. is 35 percent. Last year, the six biggest drugmakers cut their effective rate by more than half, a record for the decade, according to a review of 10 years of filings by Bloomberg News.
The filings also show that tax avoidance strategies make up a significant portion of the profits that investors use to assess drugmakers profitability.
Spokespeople for the six drugmakers declined to comment or make any of their tax staff available for an interview.