Glaxo faces $1bn IRS tax hit

GlaxoSmithKline faces $1bn tax bill as the US Internal Revenue Service challenged the company's 'intercompany financing arrangements'

Written by Michelle Perry

Accountancy Age, 14 Feb 2008

Europe’s largest drugs maker could face a tax bill in excess of $1bn (£510m) if the US Internal Revenue Service wins its challenge to GlaxoSmithKline’s ‘intercompany financing arrangements’.

GSK is in dispute with the US tax office over liabilities worth $680m concerning the period 2001/03.

But if the IRS wins the claim in court, GSK would expect to have an ‘additional liability for the four-year unaudited period 2004-07 proportionate to its liability for the three-year audited period 2001-03’.

The extra liability is expected to push the bill over $1bn, but the extra sums are unaudited and the company has therefore not briefed the market on the total value.

GSK disputes the IRS charge and has said it ‘will vigorously contest’ it. If the case goes to court, a resolution is not expected before 2010.

In its preliminary results announcement for the year ended 31 December 2007 GSK said it believes, ‘supported by external professional advice, that this claim has no merit and that no adjustment is warranted’.

GSK is still discussing a transfer pricing issue with HM Revenue & Customs. The issues date back to 1994 and is likely to go to court given ‘a wide difference between the group and HMRC positions’.