The US Internal Revenue Service has ordered Europe’s largest pharmaceutical firm, GlaxoSmithKline to pay $2.7 billion in back taxes relating to alleged transfer pricing offences between the years 1989 to 1996.
The dispute centers on a long-running battle between the firm, formed from the merger of Glaxo Wellcome and SmithKlineBeecham three years ago, and the US tax authority, which claims that GSK’s American subsidiary was overcharged for a number of drugs, thereby allowing it to unlawfully reduce its tax liability.
Glaxo has said that it plans to fight the charges in the US Tax Court on the grounds that the additional tax claim is “inconsistent with the treatment of other pharmaceutical companies”, including that of legacy firm SmithKlineBeecham.
However the firm also stated that with interest added onto the initial $2.7 billion IRS demand, it could face a total tax bill of $5.2 billion, although a spokesman revealed that Glaxo has “sufficient” provision to meet its tax liabilities relating to the period in question.
A company statement revealed that the firm expects to go to trial sometime in 2005 or 2006.
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