Inquiry to examine pharmaceutical tax arrangements

THE focus of a high-level inquiry into corporate tax avoidance will move to some of the globe’s biggest drug companies during hearings today.

After revealing details of the tax minimisation strategies at Google, Apple and Microsoft, the Senate’s Standing Committee on Economics will hear from pharmaceutical executives in Sydney.

Among those due to appear are executives at Pfizer, Johnson and Johnson, and GlaxoSmithKline, which produce many common drugs and medical products sold in Australia.

Senators Christine Milne, Sam Dastyari and others have been pushing for more transparent tax arrangements and a crackdown on avoidance strategies that are sending profits offshore without a fair share of tax being paid in Australia.

The committee has already revealed details of the complex offshore structures – in Singapore, Ireland and other countries – some corporations have used to minimise the tax they pay in Australia.

Pfizer, the company behind Zoloft and Lipitor, has told the inquiry it paid an effective underlying tax rate of 40% last year, 10% above the corporate tax rate.

The submission also said the company had no disputes before the tax office, and a recent transfer pricing review identified no issues with its tax bills.

The company also wrote it paid some $665 million in other taxes in the past four years, on top of corporate income tax.

While Pfizer did not report specific earnings or its total tax bill, it said it generated more than $3 billion in exports from Australia, which represented 11% of its 2014 net revenue.

More than half of the company’s revenue, 54%, was earned through the taxpayer-subsidised sale of medicine listed on the Pharmaceutical Benefits Scheme.

Similarly, Johnson and Johnson wrote the company earned $1.47 billion in Australian revenue in 2013, with a $69 million profit before income tax.

The firm has told the inquiry it paid an “actual cash tax” of $27.5 million in 2013 and the tax office has rated it a “low-risk taxpayer”.

No reporting date has been set for the inquiry.