NPR 4/15/24: Drugmakers’ low U.S. taxes belie their high sales

Some excerpts:

Corporations are supposed to pay a nominal tax rate of 21%. But in recent years, the biggest pharmaceutical companies had an average effective tax rate of less than 12%, according to an analysis by the Senate Finance Committee….

An NPR examination of financial records for the top five drug companies in the U.S. showed that in 2023, all but Eli LIlly reported losing money in the US.

However, drug companies make most of their sales in the U.S., thanks in large part to its unique health care system and the higher prices Americans pay for drugs. The top five American pharmaceutical companies all had more drug sales in the U.S. than they did in all the other countries in the world put together…

“How do they do it? You license your intellectual property to an offshore subsidiary,” Setser tells NPR. “You produce the high value-added active ingredients in a factory in Ireland or Singapore, and you pretend like the profit is accrued to these offshore subsidiaries, even though the sales are back to the United States…”

The drug industry isn’t the only one that moves its income around to pay lower taxes, but the U.S. market’s role in driving the drug industry’s overall revenue makes the tax strategy stand out, says Ameet Sarpatwari, assistant director of the Program on Regulation, Therapeutics and Law at Harvard Medical School.

“These findings are striking because they show that the companies want to benefit from the high prices and the high sales in the U.S. market, but are doing everything possible to not contribute to the taxes that make that system and market function” 

My take: Despite earning top dollar and receiving all sorts of research support, the pharmaceutical industry (like other industries) are taking advantage of US tax laws and not paying their fair share. Yet, I doubt there will be legislation passed in the near future to address this. “The pharmaceutical and health product industry spent $381 million lobbying Congress in 2023 – more than any other industry that year”.

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