Drugmaker AbbVie shielded its profits from US taxes, Senate report says
“It’s critical that Congress take action to fix this broken system, so that nurses and firefighters don’t pay higher tax rates than Big Pharma,” said Sen. Ron Wyden (D-Ore.) , the chairman of the panel, in a statement. .
AbbVie spokespersons did not immediately respond to a request for comment.
Investigating AbbVie, the maker of the popular arthritis drug Humira, Democrats on the Senate’s top tax-focused committee found that the drug company in 2020 generated 75% of its sales in the United States – but didn’t. had declared only 1% of this income for US tax purposes. According to the report, AbbVie was able to reduce its tax burden thanks to the 2017 Trump Act, which changed the way companies calculate their tax bills on profits generated internationally.
Essentially, the law established a minimum tax of 10.5% on income from patents, trademarks and other overseas assets. The move was intended to ensure that further changes to the tax code did not trigger a wave of offshoring, with companies shifting their operations from the United States to tax havens overseas.
But Democrats have long argued that many multinational corporations have quickly found new ways to exploit this system anyway. Some of the most profitable companies in the world have allocated their assets in such a way that they can pay far less than they should have.
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AbbVie profited because it founded its patents, trademarks and other assets for the sale of Humira with subsidiaries in Bermuda, while manufacturing key parts of the drug through a branch in Puerto Rico, the US investigation found. Senate Democrats. These and other tactics have helped AbbVie significantly reduce the taxes it owes, lowering its effective U.S. rate in 2018 to around 8.7% from 19% a year earlier, the data shows. For 2021, AbbVie is expected to pay an estimated effective tax rate of approximately 12.5%, he said earlier this year.
The report also quotes AbbVie Chief Executive Richard A. Gonzalez, who told investors in 2018 that the GOP tax law would lower the company’s effective rate to nearly 9%, far less than the company’s rate. of 21% adopted in 2017.
In releasing the findings, top Senate Democrats sought to lay the groundwork for an even deeper investigation targeting the pharmaceutical industry and its exorbitant profits. Wyden requested similar documents from two other drugmakers, Merck and Abbott. His panel’s report blamed the two companies for “refusing to cooperate in any substantial way.”
Earlier this year, Wyden also took aim at Abbott for his role in the national infant formula shortage. The closure of one of its key factories has left Wyden concerned that the company’s tax practices and stock buybacks – intended to maximize profits and returns on investment for shareholders – had come at the expense of infant safety. Abbott denied this, stressing in a statement at the time that it was a “responsible and transparent taxpayer” while adding that the share buybacks “do not affect our ability to invest or reopen”. .
In the meantime, Democrats have made significant changes to the way pharmaceutical giants price their drugs and pay their taxes.
To reduce costs for seniors, party lawmakers have proposed granting the government new powers to negotiate certain drug prices on behalf of Medicare beneficiaries. On Wednesday, Democrats took the next procedural step to advance the plan, details of which were first reported by The Washington Post last week. Party lawmakers hope to pass it as part of a larger spending package in the Senate using a process known as budget reconciliation. The tactic will allow Democrats to circumvent a Republican filibuster even in the tightly divided Senate.
Manchin supported efforts to reduce drug prices. But he has yet to reach an agreement with other members of his party on the rest of the package, a successor to the ill-fated Build Back Better Act, which passed the House but foundered in the Senate last year. The West Virginia moderate opposed Democrats’ previous bill, a sprawling $2 trillion measure, arguing it could add to the deficit and worsen inflation. GOP lawmakers, on the other hand, have long opposed allowing Medicare to negotiate costs.
The Biden administration has moved forward trying to strike a deal on a global minimum tax that would discourage corporations from taking advantage of low-rate tax havens. Its fate rests in part with the Senate, which should change existing laws to bring the country in line with the rest of the world.
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But that proposal also failed last year, another victim of Manchin’s resistance to passing the Build Back Better Act. Republicans, meanwhile, sought to protect their 2017 tax bill at all costs, arguing that the sum total of the changes had rejuvenated the US economy.
In recent weeks, Manchin has privately expressed resistance to the Biden administration’s approach, according to two people familiar with the matter, who spoke on condition of anonymity to discuss the delicate talks. As the moderate discussed alternatives with Senate Majority Leader Charles E. Schumer (DN.Y.), the two people familiar with the deliberations raised concerns that international tax provisions could be scrapped altogether.
Wyden’s aides, who helped draft the plan, pointed out in their report Thursday that their findings with AbbVie illustrated the consequences of inaction. “It is imperative that Congress enact necessary international tax reforms that would close the loopholes that allow pharmaceutical companies like AbbVie to hide their profits in tax havens,” they wrote.