The world’s biggest pharmaceutical companies appear to be dodging an estimated USD 3.8 billion in tax per year across 16 countries, stated an Oxfam report released on Tuesday. While the bulk of this was in developed countries, the four companies mentioned — Pfizer, Johnson & Johnson, Abbott, and Merck & Co — avoided USD 112 million per year of tax in developing countries, including China and India. The report titled Prescription for Poverty is based on financial disclosures from the companies between 2013 and 2015. “In eight advanced economies, drug company profits averaged 7 percent, while in seven developing countries they averaged 5 percent. Yet globally, these corporations reported annual global profits of up to 30 percent. So where were the high profits? Tax havens. In four countries that charge low or no corporate tax rates, these companies posted skyrocketing 31 percent profit margins,” stated the report.
“This is either an astounding coincidence or the result of using accounting tricks to deliberately shift profits from where they are actually earned to tax havens,” it stated, while clarifying that it was not accusing the companies of illegalities. The report observed that the huge prices charged for life-saving medicines by these companies did not mean greater investment in research and development. “Big drug companies spend more on whopping payouts to shareholders and executives than on R&D,” stated the report. Between 2006 and 2015, they spent USD 341.4 billion of their USD 1.8 trillion revenues on stock buybacks and dividends, while they spent just USD 259.4 billion on R&D, it stated, adding that R&D expenses were tax deductible. The companies’ R&D spending was also smaller than on marketing. In 2013, Johnson & Johnson spent more than twice as much on sales and marketing as on R&D (USD 17.5 billion vs USD 8.2 billion). Pfizer (USD 11.4 billion vs USD 6.6 billion), and Merck (USD 9.5 billion vs USD 7.5 billion) were not very different. These marketing costs are also tax deductible. The report explained how two Pfizer subsidiaries, (Pfizer Asia-Pacific and Pfizer Asia Manufacturing) in Singapore, a tax haven, earned a profit of USD 2.1 million in 2014 on revenues of USD 4.3 billion, a rate of over 49 percent.
These two subsidiaries may sell their wares to other subsidiaries in Asia, while keeping most of the profit in low-tax Singapore, stated the report. The report also pointed out how US pharma companies make a lot of money from developing countries. For 2015, 42 percent of Abbott’s sales, 26 percent of Johnson & Johnson’s, 23 percent of Pfizer’s and 17 percent of Merck’s were in emerging markets. Yet, the companies’ tax practices may result in significant revenue losses to many developing countries. The report concluded that despite pious statements about corporate social responsibility, actual practices bear little resemblance to rhetoric and called upon governments to work together to crack down on tax avoidance. – TOI
And of course they need to be exempted from trade margin rationalization as they hardly make profits. Fact is they repatriate as royalties and commission to their own sister co-located in tax heavens and show minimal net profits to avoid paying taxes while making huge gross margins.