SCOTT JAGOW: Glaxo Smith Kline is the world's second largest pharmaceutical company. Today the company agreed to the biggest U.S. tax settlement ever. A hair over $3 billion. But, Helen Palmer reports from the Marketplace Health Desk at WGBH, Glaxo might be getting off easy.
HELEN PALMER: The IRS accused GlaxoSmithKline of what's called "transfer pricing." New York University taxation professor Dan Schaviro says this can be a tax dodge. A company can claim most of its earnings belong in a country where taxes are low, say Bermuda.
DAN SHAVIRO: Anything you can do in terms of intercompany transactions to have all your income show up as Bermuda income instead of U.S. income lowers your U.S. tax bill, and you end up way ahead worldwide.
In Glaxo's case, the argument centred round how much intellectual property from the U.K. is worth. Glaxo argued it had overpaid U.S. taxes and claimed a refund. But the IRS said the company made most of its profit in the U.S. and should pay more. Glaxo spokeswoman Patty Seiff says, given the uncertainty of litigation, the company's happy to settle this for $3 billion.
PATTY SEIFF: Our estimates would have shown that the potential exposure here — total expsoure — could have been $14 billion to $15 billion.
Seiff says the company's already set aside more than $3 billion to cover this cost. Legal experts think it's a smart move of the company. Elizabeth Nowicki teaches corporate governance at Cornell University.
ELIZABETH NOWICKI: Glaxo cannot afford the sort of negative press any sort of corporate "scandal" will draw.
Pharmaceutical analyst David Webster says Glaxo's made the right move too. Most of U.S. health spending comes from the taxpayer, he says, and Glaxo's behaving like a good corporate citizen — now.
DAVID WEBSTER: They can now show that they will be shouldering their fraction of the tax burden in the U.S.
But the IRS gets something here too, over and above the $3 billion. This action sends a message to other companies that tax authorites are watching, and they'll pursue wrongdoing for as long as it takes.
In Boston, I'm Helen Palmer for Marketplace.