Corp-Ethics.com - Report: £1.5bn Tax Bill

Company	GlaxoSmithKline [Company Info]
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Date	Issue	Title
8th Jan 2004	Questionable Practice	£1.5bn Tax Bill

Report

Drug giant plans court challenge against tax authorities in long-running dispute over profit allocation, writes Rosie Murray-West

Glaxo Smithkline, the drug giant, yesterday revealed that it had received a £1.5billion bill from the US tax authorities and estimated it could also owe £1.4 billion in interest unless it wins a case against them.

The demand is the latest event in a long-running dispute between Glaxo and the Internal Revenue Service over the amount of tax that Glaxo Wellcome, which later merged to form Glaxo Smithkline, owes for the years 1989 to 1996.

A spokesman for Glaxo said that the company does not believe that it owes this amount in tax and said that the claim by the IRS is "inconsistent with the treatment of other pharmaceutical companies, including GSK legacy company Smithkline Beecham".

He added that the company believes it has made adequate provision for tax liabilities but would not comment further on this issue.

The company will now file a petition in the US tax court within the next 90 days, which will give more details on the tax dispute. However, a trial is not expected until 2005 to 2006. The spokesman said if the two parties are unable to reach agreement, it is possible that the dispute could move all the way up to the Supreme Court.

While the dispute continues the money that the IRS believes that Glaxo owes is accruing interest. Glaxo said that it also expects to receive an additional assessment for the period between 1997 and 2000, for which similar tax issues remain open.

The dispute between the IRS and Glaxo is over transfer pricing, or the way that profits are allocated for taxation between the US subsidiary and its UK parent company.

The IRS believes that the US subsidiary was paying too much in royalties from the US to the UK on six top-selling drugs, including blockbuster ulcer drug Zantac. This means that they paid taxes on profits in the UK rather than the US.

The UK has supported Glaxo in this dispute but Glaxo said yesterday that talks between the two countries had "collapsed" and that UK tax authorities were no longer involved. "The company believes these discussions collapsed when the UK supported the GSK position that no additional taxes were due to the IRS," the Glaxo spokesman said.

Although the news was enough to hit the shares, down 27 to £12.33, analysts said that the dispute would still take a long time to be resolved.

Standard & Poor's, the ratings agency, said its outlook on Glaxo would not be affected.

It said it expected the process to be "drawn out and last three to five years". The agency added that even if the case goes badly, the group has excellent liquidity and superior free cash flow to fund the tax demand.

Deutsche Bank analysts said that a potential payout was "unlikely before 2007" and noted that although the figures involved are "huge", in the last 12 similar cases the companies involved have all settled at less than the disputed amount.

While half these companies settled owing nothing, four paid 25pc of the disputed amount and two paid half of it.

"GSK is expected to try to settle this matter out of court," the broker said.

Lawyers began taking depositions from former Glaxo employees, many of whom are in their late seventies, two years ago, to ensure that the evidence can be presented at a later date.

These employees include Sir Paul Girolami, former chairman of Glaxo's worldwide operations and Sir David Jack, a senior research and development head.

Other Reports on GlaxoSmithKline
Date	Issue	Company	Report
29th Jan 2007	Questionable Practice	GlaxoSmithKline	GSK hid paxil suicide link
10th Aug 2006	Other Issue	GlaxoSmithKline	Glaxo pays $70m to end price row
29th Mar 2006	Questionable Practice	GlaxoSmithKline	Glaxo agrees US Paxil settlement
18th Mar 2005	Other Issue	GlaxoSmithKline	Glaxo shares dip on factory probe
22nd Sep 2004	Questionable Practice	GlaxoSmithKline	Glaxo drops appeal in Aids drug pricing case
6th Sep 2004	Other Issue	GlaxoSmithKline	GSK faces anti-depressant lawsuit
19th May 2004	Other Issue	GlaxoSmithKline	New York sues GlaxoSmithKline
11th May 2004	Fraud Investigation	GlaxoSmithKline	GlaxoSmithKline faces antitrust investigation
22nd Jan 2004	Fraud Investigation	GlaxoSmithKline	$11.1 Million settlement
16th Dec 2003	Questionable Practice	GlaxoSmithKline	Glaxo's CEO to scoop 5.7 mln stg a year
25th Jun 2003	Questionable Practice	GlaxoSmithKline	FDA tells Glaxo to pull misleading Flonase ads
25th Jun 2003	Questionable Practice	GlaxoSmithKline	Ordered to pull misleading adverts

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