Senate Investigation Reveals Extent to Which Pharma Giant AbbVie Exploits Offshore Subsidiaries to Avoid Paying Taxes
The Senate Finance Committee is currently conducting an investigation into the tax practices of several large pharmaceutical corporations headquartered in the United States. The investigation, which is ongoing, was initiated to understand how the 2017 tax law helped slash tax rates for large pharmaceutical corporations that pad their profits by selling American consumers essential prescription drugs for exorbitant prices. The 2017 tax law made it easier for these corporations to use subsidiaries in offshore tax havens to avoid billions of dollars in taxes on U.S. drug sales and pay tax rates that are a fraction of that paid by the average working American family.
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In 2020, over 75% of AbbVie’s sales were made to American consumers yet only 1% of AbbVie’s income was reported in the United States for tax purposes. AbbVie’s ability to exploit subsidiaries in offshore tax havens to avoid paying billions of dollars in taxes on U.S. prescription drug sales signals a clear need to reform the international tax code. Under the 2017 tax law, AbbVie has continuously paid an effective tax rate that is less than half the U.S. corporate tax rate of 21% and the marginal tax rate of 22% paid by an American family with a combined income of $84,000. A multinational pharmaceutical corporation with annual sales of over $50 billion in annual sales paid a lower tax rate than a postal service worker or a preschool teacher.
The report details how AbbVie used a loophole in the 2017 tax law that set up a minimum 10.5 percent tax on income derived from patents, trademarks and other assets abroad. The move was meant to ensure that other changes to the tax code did not spark a wave of offshoring, with companies shifting their operations from the U.S. to low-tax havens overseas. AbbVie benefited because it had based its patents, trademarks and other assets for the sale of Humira with subsidiaries in Bermuda, while manufacturing key parts of the drug via a branch in Puerto Rico, the Senate Democrats’ investigation found. These and other tactics helped AbbVie sharply reduce the taxes it owed, lowering its effective U.S. rate in 2018 to about 8.7 percent from 19 percent a year earlier, the data show.
AbbVie is a publicly traded pharmaceutical company headquartered in Chicago and owns the exclusive rights to several blockbuster drugs, including Humira and Imbruvica. For several years, Humira was the best-selling prescription drug in the world. AbbVie is an enormously profitable company that does most of its business in the United States. In 2021, AbbVie generated over $56 billion in worldwide sales, with over 77% of those sales made in the United States. Over the last four years, AbbVie has sold an astounding $62 billion worth of Humira in the United States. Since AbbVie began to sell Humira in 2003, the price of Humira has been raised 27 times. Humira is now priced at $2,984 per syringe, or $77,586 for a year’s supply, a 470 percent increase from when the drug entered the market. Additionally, multi-million dollar bonuses for AbbVie executives have been directly tied to rising revenue targets for Humira, creating incentives to continue raising drug prices.
This is not the first time that Big Pharma drug makers have avoided taxes while raking in record profits from Americans while also benefiting from government funding. In a 2018 report, Oxfam concludes that Pfizer, Merck, Johnson & Johnson and Abbott dodge $3.7 billion annually—$2.3 billion in the U.S. alone—by shifting profits to tax havens, where subsidiaries pay a lower rate.
Democratic Senators are saying it is time to close loopholes that allow those at the top to pick and choose when, and whether, to pay tax.
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Tags: BIG PHARMA, DRUG MAKERS, PHARMACEUTICAL MAKERS, TAX AVOIDANCE, TAX DODGE