Ron Wyden [Image from U.S. Senate Finance Committee]
Senate Finance Committee Chair Ron Wyden (D-Oregon) wrote a letter demanding compliance from Merck and Abbott.
The letter demands that Merck and Abbott complay with the Senate Finance Committee’s investigation into the tax practices of Big Pharma.
According to a news release from the Senate Finance Committee, the two companies have, to this point, “stonewalled” the committee, refusing to provide specific information related to where they book profits from U.S. drug sales. That includes the refusal to provide specific data on how much taxable income is reported by offshore subsidiaries — known as controlled foreign corporations — for tax purposes, the committee said.
The data would allow the committee to better understand the discrepancy between U.S. sales and where income is booked, the Senate Finance Committee noted, adding that the 2017 Republican tax law “encouraged and rewarded” Big Pharma’s shifting of profits offshore, allowing companies like Merck and Abbott to avoid billions of dollars in taxes on U.S. prescription drug sales.
Wyden wrote that Merck has twice declined to provide the committee with the information it requested, keeping under wraps how much of its profits are reported by offshore subsidiaries for tax purposes.
He wrote to the company: “Merck has indicated that all profits from sales of blockbuster cancer drug Keytruda, including sales made to U.S. consumers, are ‘taxed in jurisdictions outside the United States.’ Merck further stated that as Keytruda became an even larger portion of Merck’s overall profits, this ‘increased the portion of Merck’s overall income subject to tax outside the United States.’ Since Merck holds the intellectual property rights to Keytruda in the Netherlands and manufactures the drug entirely in Ireland, Merck is able to avoid billions of dollars in taxes on profits from Keytruda sales in the United States.”
Meanwhile, the committee alleges that Abbott rewards investors through stock buybacks — spending over $2 billion buying back its own stock in the first six months of 2022 — rather than turn its focus to other issues, with the committee centering its focus on the current infant formula shortage and ongoing troubles at Abbott’s plants that produce the formula.
In a letter to Abbott, Wyden wrote, “Unfortunately, Abbott has declined to provide the Committee this information, choosing to keep secret how much of its profits are reported by offshore subsidiaries for tax purposes. As noted in previous communications on this matter, it appears Abbott is the beneficiary of favorable tax treatment in several well-known low tax and tax haven jurisdictions. … The United States is by far Abbott’s biggest customer market and profit center. In 2021 alone Abbott sold over $16 billion worth of pharmaceutical goods to U.S. customers. That is six times more than its second biggest market, Germany, and seven times more than its third biggest market, China.
“In fact, in 2021 Abbott sold more pharmaceutical products in the United States than Germany, China, Japan, India, Canada and Switzerland combined. Yet despite all of this, it is unclear how much of Abbott’s income is being reported offshore for tax purposes.”