In what has been described as the biggest tax settlement in US corporate history, GlaxoSmithKline said it had agreed to settle its $3.4bn (£1.8bn) transfer pricing tax dispute with the Internal Revenue Service.

GSK will pay the Internal Revenue Service the huge figure, and will abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, as part of an agreement to resolve the parties' long-running transfer pricing dispute for the tax years 1989 through 2005.

The settlement covers a dispute that ranges from 1989-2000, but GSK had made provision for the dispute and it does not expect the settlement to have a 'significant impact' on the company's reported earnings or tax rate.

'GSK was confident of the strength of its position, but in view of the size of the potential financial exposure, as well as the continued level of resource being applied to the case, GSK concluded that it was in the best interests of its shareholders to reach this settlement, thereby removing the costs and uncertainty of future litigation,' the company said in a statement today.

'We have consistently said that transfer pricing is one of the most significant challenges for us in the area of corporate tax administration,” said Mark W Everson, commissioner of Internal Revenue.

'The settlement of this case is an important development and sends a strong message of our resolve to continue to deal with this issue going forward.'