NEW DELHI: The world’s biggest pharmaceutical companies appear to be dodging an estimated $3.8 billion in tax per year across 16 countries, stated an Oxfam report released on Tuesday. While the bulk of this was in developed countries, the four companies mentioned — Pfizer, Johnson & Johnson, Abbott and Merck & Co — avoided $112 million per year of tax in developing countries, including China and India.
The report titled ‘Prescription for Poverty’ is based on financial disclosures from the companies between 2013 and 2015. “In eight advanced economies, drug company profits averaged 7%, while in seven developing countries they averaged 5%. Yet globally, these corporations reported annual global profits of up to 30%. So where were the high profits? Tax havens. In four countries that charge low or no corporate tax rates, these companies posted skyrocketing 31% profit margins,” stated the report.
“This is either an astounding coincidence or the result of using accounting tricks to deliberately shift profits from where they are actually earned to tax havens,” it stated, while clarifying that it was not accusing the companies of illegalities. The report observed that the huge prices charged for life-saving medicines by these companies did not mean greater investment in research and development.
“Big drug companies spend more on whopping payouts to shareholders and executives than on R&D,” stated the report. Between 2006 and 2015, they spent $341.4 billion of their $1.8 trillion revenues on stock buybacks and dividends, while they spent just $259.4 billion on R&D, it stated, adding that R&D expenses were tax deductible. The companies’ R&D spending was also smaller than on marketing.
In 2013, Johnson & Johnson spent more than twice as much on sales and marketing as on R&D ($17.5 billion vs $8.2 billion). Pfizer ($11.4 billion vs $6.6 billion), and Merck ($9.5 billion vs $7.5 billion) weren’t very different. These marketing costs are also tax deductible. The report explained how two Pfizer subsidiaries, (Pfizer Asia Pacific and Pfizer Asia Manufacturing) in Singapore, a tax haven, earned a profit of $2.1 million in 2014 on revenues of $4.3 billion, a rate of over 49%.
These two subsidiaries may sell their wares to other subsidiaries in Asia, while keeping most of the profit in low-tax Singapore, stated the report. The report also pointed out how US pharma companies make a lot of money from developing countries. For 2015, 42% of Abbott’s sales, 26% of Johnson & Johnson’s, 23% of Pfizer’s and 17% of Merck’s were in “emerging markets”.
Yet, the companies’ tax practices may result in significant revenue losses to many developing countries. The report concluded that despite pious statements about corporate social responsibility, “actual practices bear little resemblance to rhetoric” and called upon governments to work together to crack down on tax avoidance.