Big Pharma hauls in big profits. But at least companies pay taxes. Right?

May 22, 2023

U.S. Sen. Ron Wyden, an Oregon Democrat and chairman of the Senate’s Finance Committee, has spent two years investigating whether pharmaceutical companies pay their fair share of U.S. taxes.

The answer, according to the senator’s latest findings: Nope. Not even close.

Wyden accuses the pharmaceutical industry, comprised of large multinational corporations, of reporting 75% of their taxable income overseas, where they take advantage of much lower tax rates.

“When most Americans travel to some faraway land, they get a sun tan,” Wyden said. “When Big Pharma’s profits travel overseas, they get a tax break.”

The pharmaceutical industry paid an average tax rate of about 20% from 2014 to 2016. But the average rate fell to 11.6% in 2019 and 2020 in the wake of new tax reforms, according to Wyden and reported by CNBC.

And some companies paid rates even lower.

Last summer Wyden released an interim report detailing how Chicago-based drugmaker AbbVie used offshore subsidiaries to avoid paying billions of dollars in taxes on prescription drug sales. That report found AbbVie generated 75% of its sales from U.S. consumers in 2020 but reported just 1% of its taxable income in the U.S.

What does Big Pharma have to say?

New Jersey-based drugmaker Merck defended its approach in a report published by the Financial Times in August 2022. In 2021 Merck paid an effective tax rate of 11%, about half of the U.S. corporate tax rate of 21%. About half its sales were generated in the U.S., according to company filings.

“From a tax perspective we operate and comply with not only the words of tax law but the spirit of tax law in each and every country in which we operate. I feel very strongly that what we do is the right thing,” Caroline Litchfield, Merck’s chief financial officer, told the Financial Times.

What do you think? Do you want Big Pharma to pay its fair share of U.S. taxes? Share your stories, your views and your selfies (!) with Voices for Affordable Health.