Bristol Myers faces $1B+ tax fight after accidental disclosure reveals alleged offshore patents scheme — report
The IRS has battled Big Pharma for years over offshore patent transfer schemes, which it said have bilked the public interest by billions of dollars. Now, loose lips at the agency have revealed its pursuit of another drugmaker — Bristol Myers Squibb — that it says is on the hook for more than $1 billion in back taxes.
Bristol Myers could face nearly $1.4 billion in back taxes the IRS believes it evaded paying as part of a scheme to move its patent rights from the US to an Irish subsidiary and reap the income write-offs, the New York Times reports.
The dispute was revealed as part of an accidental disclosure from the agency last spring, the Times said, which was almost immediately pulled from public view.
At the center of the IRS’ claims is Bristol’s effort in 2012 to establish an Irish subsidiary as a vehicle to shuttle US drug patent rights over to a country with lower corporate tax rates. In a scheme known as amortization, companies can write off the value of an asset — patents, for instance — from their taxable income over a period of time. Bristol had already written off the value of its patents in the US, the IRS said, and set up a plan to move those rights to Ireland, where that value had not yet been written off.
The outcome? Around $1.38 billion in back taxes, the IRS said.
“Bristol Myers Squibb is in compliance with all applicable tax rules and regulations,” the company said in a statement. “We work with leading experts in this area and will continue to work cooperatively with the IRS to resolve this matter. Beyond that, we don’t comment on ongoing regulatory matters.”
The scheme was lucrative, the Times reported. The company’s effective corporate tax rate was -7% in 2012 compared with 25% in 2011. The difference was so stark that analysts reportedly quizzed executives on the disparity during a Q4 2012 earnings call — questions that Bristol refused to answer.
Meanwhile, Bristol Myers’ plan reportedly got a sign-off from two corporate auditors, PwC and White & Case, in late 2012. Both firms sent lengthy letters to Bristol essentially clearing the scheme — even after Merck had been cited by the IRS back in 2006 for a similar offshoring effort that saved it $1.5 billion in federal taxes over 10 years.
In that case, Merck offloaded its US patents to a Bermuda subsidiary, which it then turned and paid for access to those patents, the IRS said. The amortization scheme wasn’t even unique to Merck: Other big-name drugmakers such as J&J, Pfizer and Abbott have all been implicated in similar plans in the past.
In a 2018 report, Oxfam estimated that offshoring schemes were saving those four drugmakers around $2.3 billion per year in US federal taxes. In total across nine developing countries including the US, Oxfam estimated the firms were writing off around $3.7 billion per year.