Drugmaker Merck has defended the corporate’s approach to tax after a US congressional committee accused it of exploiting loopholes to keep away from paying billions of {dollars} and blocking an inquiry into its practices.
Chief monetary officer Caroline Litchfield stated the corporate operates with the best “ethics and integrity in absolutely everything we do” and is continuous to co-operate with the Senate finance committee’s investigation into its tax affairs.
Merck is one of a number of US-based multinational firms which have come below scrutiny from the committee, which is investigating how Big Pharma makes use of a mixture of offshore subsidiaries, tax exemptions and authorized loopholes to slash their tax payments.
In 2021 the Kenilworth, New Jersey-based firm paid an efficient tax charge of 11 per cent in 2021, nearly half the US company tax charge of 21 per cent. Almost half of its gross sales have been generated within the US, in keeping with firm filings.
“From a tax perspective we operate and comply with not only the words of tax law but the spirit of tax law in each and every country in which we operate,” Litchfield stated in an interview. “I feel very strongly that what we do is the right thing.”
Litchfield’s feedback comply with blistering criticism of Merck final week from Democrat Ron Wyden, the Senate finance committee chair, who accused the corporate of stonewalling the committee’s investigation into the tax insurance policies of US pharmaceutical firms.
Merck had twice declined to supply data to the committee and is selecting to maintain secret how a lot of its earnings are reported by offshore subsidiaries for tax functions, he stated.
“There appears to be a substantial discrepancy between where Merck generates prescription drug sales and where Merck books profits from those drug sales for tax purposes,” he added.
The committee is investigating how Merck constructions gross sales of its blockbuster most cancers drug Keytruda, which reached $17.2bn final 12 months, a rise of 19.5 per cent in contrast with 2020. It is inspecting why all earnings generated from sale of Keytruda — together with gross sales made to American patrons — are taxed in jurisdictions exterior the US.
“Since Merck holds the intellectual property rights to Keytruda in the Netherlands and manufactures the drug entirely in Ireland, Merck is able to avoid billions of dollars of taxes on profits from Keytruda sales in the US,” stated Wyden.
Tax specialists say pharma firms are among the many most prodigious customers of aggressive tax methods and have previously deployed offshore schemes with vibrant names, such because the “double Irish”.
Brad Setser, an economist with the Council on Foreign Relations, a non-partisan think-tank, stated a number of US pharmaceutical firms report that they earn the huge bulk of earnings exterior the US regardless of having substantial gross sales within the firm.
“It isn’t a coincidence that they also produce some of their most important drugs outside the US, as offshore production helps create the legal basis for booking profits in jurisdictions with tax rates well below the US headline rate,” he stated.
Dublin in 2020 phased out the “double Irish” loophole, which makes use of two Irish registered firms to channel earnings via Ireland and on to tax havens like Bermuda. But specialists say multinationals have continued to deploy aggressive tax practices to keep away from paying US taxes.
The Senate committee alleges former president Donald Trump’s 2017 Tax Cuts and Jobs Act created extra loopholes in US tax legislation that inspired Big Pharma teams to make use of totally different schemes to shift their earnings offshore. It is in search of extra data from Merck and Abbott Laboratories to attempt to determine the loopholes and suggest laws to stop tax avoidance.
AbbVie, which manufactures the blockbuster rheumatoid arthritis drug Humira, booked 99 per cent of 2020 gross sales in overseas subsidiaries despite the fact that three quarters of gross sales have been made within the US, in keeping with the committee’s interim report printed final month.
Litchfield stated Merck’s determination to carry the mental property for Keytruda within the Netherlands is totally applicable, noting {that a} crew of Dutch scientists invented the drug.
“It’s within the ethical boundaries to have intellectual property owned where that intellectual property was discovered. That’s what the situation is with regards to Keytruda.”