The six biggest U.S. pharmaceutical companies reported $215 billion in domestic sales in 2022, but paid only about 3% of their global profit in taxes, far below the average corporate tax of 21%, Business Insider reports.
Big Pharma succeeds at getting away with this by shifting profits and patents abroad, which, undeniably, is permitted in the IRS tax code; the Caribbean and Europe are two of their favorite no-tax offshore destinations.
Of the eight biggest U.S. pharmaceuticals, only one, Gilead, reports the majority of its income in the U.S. The remaining seven paid the IRS $2 billion on their $108 billion global profit in 2022.
Take just two pharmaceutical companies as case studies. Sen. Ron Wyden, D-Oregon, investigated AbbVie, maker of the immunosuppressive drug Humira, and found it booked 99% of its 2020 profit outside of the United States. In 2022, AbbVie even reported a $5 billion loss at its U.S. operations.
Merck, maker of Keytruda, claimed to earn just $1 billion on $27 U.S. sales in 2022—but, curiously, a $15 billion profit on $32 billion in sales overseas.
“At this point, profit sharing is the industry norm,” says Setser. “The tax gymnastics are generally legal. In fact, the U.S. corporate tax code effectively incentivizes American pharmaceutical companies to play this game.”
One way the U.S. government could end this accounting chicanery would be to levy a 15% tax on U.S. companies doing business overseas. Another would be to limit pharmaceutical companies’ tax credit claims for profits on intellectual property originally developed in the U.S.
“The net result,” Setser concludes, “would be more biopharmaceutical investment in the U.S., more tax revenues for the U.S. Treasury and, ultimately, a more resilient and more innovative U.S. economy.”
Perchance, it could result in more affordable prescription drugs in America as well.
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