How Drug Companies Are Boosting Profits Through Tax Gimmicks, Not New Medicine

In the last few years, tech companies have gotten very good at using offshore tax havens to drive down their effective tax rates. And they evidently have some company. The Wall Street Journal noted today that drug companies are also increasingly using offshore tax gimmicks to drive down their tax rates, boosting profits without investing in new medicines:

Bristol-Myers Squibb Co., BMY +0.46% in its recent earnings call, estimated its tax rate would be about 16% this year, excluding special items, down from 23% last year. Then Gilead Sciences Inc. GILD -0.23% said its rate could “decline over time” if a hepatitis C drug it is developing receives approval, because of steps the company has taken to lower taxes on the drug’s sales. Also, Amgen Inc. AMGN +0.16% reported it paid an effective tax rate of 15.9% last year, and predicts an adjusted rate of 14% or 15% this year.

Many drug makers pay effective tax rates of 20% or higher. Firms that are seeking even lower rates don’t specify their strategies, and the details can vary. But the efforts typically involve shifting revenue overseas where it can be taxed at a lower rate than in the U.S., experts say. Some companies also noted the tax benefit they will receive this year from a federal tax credit for research and development.

Reductions in their tax rates could mean hundreds of millions of dollars in extra profit for drug makers, without having to sell more drugs or launch new ones.

Brand name drug prices are also skyrocketing, giving companies more incentive to simply make tons of cash off already created products and then stash it offshore.

Sen. Bernie Sanders (I-VT) is introducing a bill today that would boost revenue by $590 billion via the elimination of huge corporate tax giveaways. Offshore tax dodging alone costs the federal government $150 billion annually.