Transfer Pricing in the News

GlaxoSmithKline to Settle Tax Dispute With U.S.
By REUTERS
Published: September 12, 2006

LONDON, Sept. 11 ( Reuters) — GlaxoSmithKline, Europe’s biggest drug maker, said Monday that it would pay $3.1 billion to settle a tax dispute with the United States government that was set to go to trial next year.

GlaxoSmithKline said the settlement would not have any significant impact on its reported earnings or tax rate, and its shares rose 0.7 percent in London.

The Internal Revenue Service claimed back taxes from Glaxo after saying that the company had engaged in “transfer pricing,” a practice meant to minimize United States taxable profits by overpaying foreign subsidiaries for product supplies.

The settlement covers an original dispute for the period 1989 to 2000, which was to go to trial in February 2007, as well as the years 2001 to 2005.

[“We have consistently said that transfer pricing is one of the most significant challenges for us in the area of corporate tax administration," Mark W. Everson, I.R.S. commissioner, told The Associated Press. “The settlement of this case is an important development and sends a strong message of our resolve to continue to deal with this issue.”]

Navid Malik, an industry analyst at the stockbroker Collins Stewart, said of Glaxo: “They were never going to end up paying nothing and this figure is within the ballpark of what people were expecting.” He added that the settlement “effectively clears an overhang that people were worried about and means investors can focus on the fundamentals at Glaxo.”

The dispute with the I.R.S. goes back to a 1992 audit by the tax authority of Glaxo Wellcome, which later merged with SmithKline Beecham to form GlaxoSmithKline.