When an American company strikes it rich, it’s supposed to be good news for Americans who stand to benefit from improved public services paid for with the taxman’s share of the new glut of money. But sometimes that cycle goes awry.
Gilead Sciences tripled its profits in recent years by charging $1,000 per pill for a lifesaving Hepatitis C medication. But the firm has stiffed U.S. taxpayers by almost $10 billion by shifting its spiking profits around the globe in that same period, according to a new report from Americans for Tax Fairness (ATF).
The firm debuted multiple lines of breakthrough treatments for the disease beginning in 2013. After booking $11.2 billion in global revenue in 2013, Gilead’s total income hit $32.6 billion last year. But the company’s price-gouging means only a tiny fraction of the millions of Americans and hundreds of thousands of military veterans who suffer from the disease actually get it.
And Gilead’s offshore profits that don’t count for U.S. tax purposes also tripled from 2013 to 2015. By holding an accumulated $28.5 billion in after-expenses profit outside the United States, Gilead shaved $9.7 billion off its tax bill, the new report says.
The offshore profit spike makes little hard sense. Two of every three sales of the drugs were inside this country, according to ATF.
‘Major Breakthrough’ In Hepatitis C Treatment Is Way Too Expensive For Anyone To AffordHealth by CREDIT: Shutterstock Solvadi, a new drug that can help combat hepatitis C, is being hailed as a ” turning…thinkprogress.orgGilead achieves its tax savings through an increasingly common corporate sleight-of-hand, employed by a range of American business titans from Apple to Caterpillar.
Gilead’s lawyers and accountants shifted the technical ownership rights to the first of its miracle cures — a pill called Sovaldi — to a subsidiary firm in Ireland in 2013. Sovaldi hit the market in December of that year.
It was followed quickly by two other Hepatitis C treatments with similarly exorbitant pricetags, each of which combines Sovaldi with another drug. A congressional investigation last year blasted Gilead’s pricing schemes for keeping the life-saving drugs out of the hands of millions of patients, the Washington Post notes.
The carefully timed legal transfer of the rights to Sovaldi profits means the vast majority of all sales of the drug will be taxed in Ireland, where corporate tax rates are designed to undercut the rates larger countries assess.
After years of developing the drug in America, with taxpayer support for the research over decades, the world’s sixth-largest pharmaceutical company schemed to ensure Americans would see almost none of the money generated by the breakthrough.
America’s Loss Isn’t Really Ireland’s Gain
The Irish flavor of Gilead’s pilfering is particularly noteworthy this week. Ireland’s government number-crunchers just told the world their national economy grew a staggering 26.3 percent last year — or four times faster than China’s growth rate.
Observers mocked the report as “leprechaun economics” and Soviet-style dissembling, noting the disconnect between official data and the real economic circumstances of the Irish people. Employment growth and total consumption have shown steady, single-digit growth in the past few years. How can such stolid metrics of how actual humans are interacting with their economy translate into an official report that Ireland’s economy was more than one quarter larger in 2015 than in 2014?
Companies like Gilead are the answer. Multinational companies are very fond of Ireland as a place to stash their cash, their headquarters, and their intellectual property. They use accounting fictions and legal-but-sketchy corporate subsidiary relationships to shift as much of their revenue as possible to tax havens.
But the on-paper relocations and restructurings do almost nothing to generate real-world economic activity on the Emerald Isle. And actual Irish citizens have suffered for years under crippling austerity measures following the collapse of the so-called “Celtic Tiger,” the nickname conservative economic observers gave to the last economic boom there that proved to be fake.
Suffering Under Austerity, Northern Ireland Puts Up Fake Storefronts For G8 SummitEconomy by CREDIT: The Irish Times When leaders of the world’s eight largest economies convene in Northern Ireland next…thinkprogress.orgIreland’s government knows this, and are open about it. The same official GDP report credited the absurd figure to the boom in “corporate restructuring” like Gilead’s scheme, inversion mergers that prompted a Treasury Department crackdown, and other acts of corporate make-believe.
The official growth rate is synthetic, driven almost entirely by direct investments from foreign companies. Home-grown businesses, service industry firms, farming, and other lines of business that actually have to employ Irish people to sell goods to other Irish people don’t see hardly any benefit from the trickery that Gilead and scores of other multi-billion-dollar titans employ to cheat the tax man back home.
If Gilead has cast Irish citizens as bystanders in its tax circus, then Americans are the real suckers. U.S. taxpayers are doubly hosed in the case of Gilead’s crown-jewel Hepatitis C meds, the ATF report notes. Sovaldi was developed using $3.7 million in grant money from the National Institutes of Health. ATF’s findings indicate Gilead’s rainmaker drug got at minimum $4.2 million in public financing in the research stage, while the company that developed it got millions more in taxpayer research funding across its other product lines.
The company’s price-gouging today leaves taxpayers spending far more to purchase the drug they paid to discover. When Sovaldi went live in 2014, Medicaid and Medicare spent a combined $4.4 billion on meds sold by Gilead. Despite that huge outlay, the drug only reached a tiny fraction of Hepatitis C patients thanks to Gilead’s $1,000-per-pill pricing scheme.
And after extracting huge profits from the drug, Gilead games the international tax code to ensure taxpayers see almost none of that money back to invest in everything from roads and bridges to the next round of life-saving miracle cures.