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If Only There Was a Drug for Tax Troubles 

27th January 2022

Is Bristol Myers Squibb trying to avoid paying taxes in the U.S.? That’s what the government wants to know. The pharmaceutical giant is under investigation to see if it violated the U.S.’ anti-abuse rules. The Senate Finance Committee requested information about the company’s tax practices after noticing the company’s effective tax rate slipped from 24.7% in 2011 to -7% in 2012. How did it happen? The company shifted property rights for prescription drugs to its Irish subsidiaries, which reduced its U.S. tax bill by $1.4 billion—an amount the U.S. would like to reclaim. (If you wonder why tax authorities pay such close attention to transfer pricing transactions that involve moving intangible assets, this is it.) The tax structure under the microscope consists of an Irish partnership, opened in 2012, which held patent rights and used amortization deductions to reduce the amount of taxes owed in the U.S. It was a risky set-up by the company given that pharmaceutical giants, many of which have earned huge profits during the Covid-19 pandemic, are on the IRS’ radar for sketchy tax practices. Case in point: The Committee is also investigating AbbVie, a pharmaceutical company, which reduced its ETR from 22% in 2017 to an average of less than 9% over the next three years. Just like Bristol Myers Squibb, AbbVie has registered patents in low-tax jurisdictions instead of in the U.S., where ironically, most of the business operations take place.