A Republican law has slashed the average tax rates of big pharmaceutical companies by more than 40% since it was enacted in 2017, Senate Finance Committee Democrats said in a report Thursday.
“Democrats warned in 2017 that the Republican tax law was going to amount to a massive giveaway to multinational corporations, and here’s the proof that that’s exactly what happened,” Sen. Ron Wyden, D.-Ore., the committee’s chair, said in a press release on the report.
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The GOP’s $1.5 trillion Tax Cuts and Jobs Act brought sweeping changes to the tax code, including a provision that essentially imposed a worldwide minimum tax on foreign earnings.
That provision allowed U.S.-based pharmaceutical companies to access lower tax rates on their foreign income, the report said.
It also created a “huge incentive” for those companies to put their profits, investments and jobs overseas, Democrats added in the report.
Pharmaceutical companies report 75% of their taxable income overseas, the report said.
The pharmaceutical industry paid a tax rate of about 20% on average from 2014 to 2016, the years right before the law passed, acccording to the commitee’s analysis.
The report said the average rate fell to 11.6% in 2019 and 2020, which resulted in billions of dollars in tax savings for pharmaceutical companies.
“There’s no question that the tax system was broken prior to 2017, but instead of fixing it, Republicans gave Big Pharma a green light for some of the most aggressive tax gaming highly trained accountants can dream up,” Wyden said.
He called for significant tax reform to ensure huge corporations “pay their fair share, while helping to spur investment in the U.S., not in foreign countries.”
The report is the latest in Wyden’s investigation into Big Pharma’s tax practices. The Oregon senator said the committee will release a final report on the probe later this year.
Lawmakers have long criticized the industry for its skyrocketing drug prices, which can shut out some patients from accessing life-saving medicines. Wyden’s probe only adds fuel to that fire.
In July, Wyden released a report detailing how drugmaker AbbVie used offshore subsidiaries to avoid paying billions of dollars in taxes on prescription drug sales.
That report found that Chicago-based AbbVie generated 75% of its sales from U.S. patients in 2020, but reported only 1% of its taxable income in the country.
That report alleged that AbbVie holds its intellectual property in a Bermuda-based subsidiary with no employees or other major operations. Bermuda imposed no taxes on that subsidiary’s profits, income, dividends or capital gains.
Wyden also obtained similar information about other U.S. pharmaceutical companies, including Abbott Laboratories, Amgen, Bristol Myers Squibb and Merck.
For most of the companies, more than 80% of their taxable income was reported overseas.
Some of the companies have defended their tax approach in the wake of the committee’s investigation.
The companies did not immediately respond to a request for comment on Wyden’s findings.