Tax break for Gilead as overseas profits jump 81%
Profits outside US exceed non-US sales for company selling $1,000 a pill HepC therapy
Gilead Science, whose $1,000-a-pill hepatitis C treatment is one of the world’s most expensive drugs, is avoiding billions of dollars in US taxes by booking profits overseas.
The company, which has operations in Ireland, reported foreign income before taxes of $8.2 billion for 2014, earning more in non-US profits than it recorded in non-US sales.
The data released in a securities filing suggest that Gilead is taking advantage of US rules that let companies shift valuable intellectual property to low-tax countries, said Robert Willens, an independent tax consultant based in New York.
“Whenever you have huge, very high profit margins and a lot of income as well, it almost always results from the exploitation of intangibles,” Willens said. “It’s quite a dramatic increase from one year to the other. That’s something you don’t see very often.”
Gilead’s disclosure is the latest example of tax planning by US-based multinational corporations, which hold about $2 trillion in stockpiled profits outside the country that haven’t been taxed by the United States.
The US government loses as much as $100 billion in revenue annually because of such international tax planning, according to estimates cited in a Congressional Research Service study.
Other US drugmakers have kept profits offshore as well. Pfizer, Merck and Bristol-Myers Squibb each has at least $24 billion outside the US, according to filings.
Cara Miller, a spokeswoman for Gilead, declined to comment beyond the information in the filing.
Gilead received approval in 2013 from the US Food and Drug Administration for Sovaldi, its blockbuster drug for hepatitis C, and the drug sold $10.3 billion last year. Sovaldi, and a related pill called Harvoni that combines Sovaldi with another drug, offers patients a convenient therapy that has transformed the way the liver infection is treated, with most patients being cured after a 12-week course.
The company has drawn criticism for the drugs’ costs. A 12-week course of Harvoni goes for $94,500, though a competing treatment introduced late last year by AbbVie has put pressure on Gilead to offer discounts to some health insurers and drug benefit managers.
Gilead reported net income of $12.1 billion in 2014, up from $3.1 billion a year earlier.
Foreign income before taxes increased even faster, to $8.2 billion from $738 million in 2013, suggesting that the vast majority of the new revenue was being recorded outside the US.
The company’s US sales rose as a percentage of all revenue, with 73 per cent of revenue coming from domestic sales, up from 60 per cent, according to the filing.
Gilead has a “worldwide revenue base and operations in Ireland”, chief financial officer Robin Washington told analysts in October.
Ireland has a top corporate tax rate of 12.5 per cent. The comparable US rate is 35 per cent, the highest in the industrialised world.
Mr Washington told analysts last year that each $1 billion in Sovaldi sales would allow the company to reduce its tax rate by 0.75 to 1 percentage points.
As of December 31st, Gilead held $15.6 billion in offshore profits that haven’t been taxed by the US, up from $8.6 billion a year earlier.
The company said it would have to pay $5.5 billion in US taxes if it brought home the $15.6 billion. That’s a 35.3 percent rate, suggesting that Gilead has paid about 5 per cent in foreign taxes on its offshore profits, Mr Willens said.
