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US pharmaceutical companies cut taxes by shifting profits to overseas subsidiaries: Shots

US pharmaceutical companies cut taxes by shifting profits to overseas subsidiaries: Shots


The United States is the most lucrative market for drugmakers, but they often pay more taxes overseas. Jim Watson/AFP via Getty Images .

switch captionJim Watson/AFP via Getty Images

The United States is the most lucrative market for drugmakers, but they often pay more taxes overseas.

Jim Watson/AFP via Getty Images

Tax day has arrived. As Americans scramble to file their last-minute taxes, things are a little more complicated for businesses.

Corporations are expected to pay a nominal tax rate of 21%. But in recent years, the largest drug companies had an average effective tax rate of less than 12 percent, according to an analysis by the Senate Finance Committee.

Why is this happening? Economist Brad Setser of the Council on Foreign Relations has spent time trying to understand it. He cited Pfizer as an example. “In a typical year, Pfizer reports losing money in the United States and making money overseas,” he says. “And as a result, in a typical year, Pfizer pays significantly more taxes outside the United States than in the United States.”

Move money

An NPR review of the financial records of the five largest U.S. pharmaceutical companies showed that in 2023, all but Eli LIlly reported losing money in the United States.

However, pharmaceutical companies make the bulk of their sales in the United States, largely thanks to its unique health care system and the higher prices Americans pay for drugs. The five largest U.S. pharmaceutical companies all sold more drugs in the United States than in all other countries in the world combined, according to Evaluate Pharma, which tracks pharmaceutical sales worldwide.

Setster attempted to explain how this translates into national losses when it comes time to pay taxes.

“How do they do it? You license your intellectual property to an offshore subsidiary,” Setser told NPR. “You produce the high-value active ingredients in a factory in Ireland or Singapore, and you claim that the profits go to these offshore subsidiaries, even if the sales go back to the United States.”

This is all legal. But it is true that tax law is complicated. There are other nuances, such as acquisitions in which the acquired company was highly leveraged, that can help lower corporate tax rates.

However, generally speaking, investors in companies want companies to get a good level of taxes and retain as much cash as possible.

The pharmaceutical industry is not alone in shifting revenues to pay less taxes, but the role of the U.S. market in driving the pharmaceutical industry's overall revenues highlights the tax strategy, says Ameet Sarpatwari, deputy director of the Regulatory Program: Therapeutics and Law at Harvard Medical School.

“These results are striking because they show that companies want to benefit from high prices and high sales in the U.S. market, but are doing everything possible not to contribute to the taxes that make this system and this market work,” he says.

Pfizer gets reimbursement

Pfizer had a particularly interesting fiscal year.

While Pfizer appears to be down from pandemic-era high revenues due to slowing sales of its COVID-19 vaccine, the drugmaker's revenue is still higher than pre-pandemic with $58.5 billion in revenue for 2023, according to the company's annual financial statements. . And the vaccine is still among the 10 best-selling drugs in the world, according to a study published in the journal Nature.

But the company pays no U.S. taxes for 2023 thanks to a negative effective tax rate. This is partly due to restructuring charges and losses.

Pfizer told NPR it is following the law and paying all taxes due.

Legislation would force businesses to pay more

Recently proposed legislation aims to limit the practice of moving profits offshore to pay less taxes. Sen. Bernie Sanders, chairman of the Health, Education, Labor and Pensions Committee, and Rep. Jan Schakowsky, an Illinois Democrat, introduced a bill last Wednesday called the Preventing Death Act. corporate tax evasion. But it is uncertain whether it will become law.

Changing the tax code is a tricky thing to do. Setser, a former adviser to the Biden administration, says he and his colleagues tried to do this a few years ago, but without success.

The pharmaceutical and health products industry spent $381 million on lobbying Congress in 2023, more than any other industry that year, according to OpenSecrets, a nonpartisan nonprofit organization that tracks money in American politics.




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