An advocacy group is urging the US Internal Revenue Service and the US Treasury Department to investigate Gilead Sciences (GILD) for allegedly shifting billions of dollars of income offshore in order to avoid paying taxes. The request from Americans for Tax Fairness comes one month after the group released a report accusing the drug maker of dodging $10 billion in taxes.
The move also comes shortly after the federal government went to court to force Facebook (FB) to respond to summonses in connection to an investigation into whether the firm shifted certain property rights to an Irish subsidiary. The social media site may owe anywhere from $3 billion to $5 billion in back taxes, and the advocacy group maintained that Gilead is worthy of the same scrutiny.
Gilead is using “a similar highly aggressive use of transfer pricing,” a maneuver that involves shifting properties between entities, “to avoid US taxes and benefit from substantially reduced tax rates. We urge the administration to bring the full force of your enforcement capabilities against Gilead to collect the tax dollars that rightfully belong to the American people,” the group wrote the federal agencies in a letter Wednesday.
In its report, the advocacy group analyzed Gilead’s financial filings and determined that by transferring certain key assets to Ireland, the company was able to take advantage of tax laws that allowed some US sales to be shifted overseas and yield a significantly lower tax rate. Those overseas profits, meanwhile, mushroomed to $28.5 billion, while Gilead was able to escape nearly $10 billion in US taxes.
“The facts suggest that Gilead may be declaring its offshore profits in Ireland, a tax haven, because the key hepatitis C drug, Sovaldi, from which Gilead derives most of its profits has been domiciled there since 2013, even though the patent is registered in the United States, and the bulk of Gilead’s hepatitis C drug sales is in the United States,” the letter to the IRS and the Treasury Department stated.
As the advocacy group noted in its recent report, three years ago, a Gilead executive told analysts the patent had been domiciled in Ireland, which would allow the US corporate tax rate to “decline over time.” As ATF noted, Gilead’s worldwide effective tax rate has since plummeted by 40 percent — falling to 16.4 percent last year from 27.3 percent in 2013.
In its letter, ATF also urged the agencies to investigate before the European Commission pursues enforcement actions that would force European nations to collect higher taxes from US companies that are sheltering profits there. If that were to happen, these other countries would collect money that “rightfully belongs to US taxpayers.”
As we noted previously, there has been controversy about US companies that exploit loopholes to avoid paying taxes. Drug makers, in particular, have been singled out for attempting to acquire rivals based overseas to enjoy lower tax rates. The Treasury Department recently issued new rules to thwart such deals, known as tax inversions, prompting Pfizer (PFE) to scuttle a plan to acquire Allergan (AGN).
Whether the IRS will take action is unclear. An IRS spokesman wrote us that “federal privacy law prohibits the IRS from commenting on specific taxpayers.”
A Gilead spokeswoman declined to comment.