Pharmaceutical companies called on to explain tiny tax contribution
Credit: The Sydney Morning Herald
The five biggest suppliers of publicly subsidised medicines in Australia recorded sales of nearly $5 billion last year but paid an average of just $10 million each in company tax.
Research by the Parliamentary Library, obtained by Fairfax Media, has disclosed the tax contribution of multinational pharmaceutical companies, including Pfizer and AstraZeneca, makers of common cholesterol drugs Lipitor and Crestor, respectively.
The report emerged as the Senate committee which recently grilled tech multinationals Apple, Google and Microsoft resolved to call pharmaceutical companies and their industry representatives to public hearings of the tax avoidance inquiry on July 1.
The committee’s move on “big pharma” came after Australian Tax Commissioner Chris Jordan told a Senate estimates hearing on Tuesday that at least four large drug makers are being audited by the tax office.
“Clearly there are [ATO] investigations happening in that industry,” he said.
The hearing heard that multinational pharmaceutical companies on average report higher profits in their overseas divisions through a combination of “transfer pricing” – where a company charges itself higher prices for imported products to reduce tax exposure in Australia – and royalty payments for intellectual property owned in jurisdictions with much lower tax rates.
The library investigation, requested by the Senate committee, found Pfizer and Sanofi-Aventis both reported losses in Australia in 2014. Those companies received a combined $1.1 billion from the taxpayer for supplying medicines through the Pharmaceutical Benefits Scheme.
In total, the top five pharmaceutical suppliers to the PBS received $2.8 billion in public money. Their total Australian sales were $4.8 billion.
But the research found their combined profits were a slim $50 million. They paid $53 million in tax between them – or roughly 1¢ in tax for every dollar earned in Australia.
Sanofi-Aventis, which had sales of $883 million, received a tax credit from the ATO of $8.7 million.
In 2013, the same companies paid just $47.5 million in tax. Medicines Australia, the Canberra-based peak body of pharmaceutical companies, said it could not comment on individual tax affairs but said its members were big investors in research and development and big employers.
Fairfax Media revealed last month that Pfizer, the number one supplier to the PBS, filling 16.4 million scripts last year, has 128 entities registered in tax havens, US-based Citizens for Tax Justice says, and $69 billion in assets held in those countries, which include Panama, Bermuda, Luxembourg and Singapore.
Mr Jordan, who has said that the pharmaceutical industry displays “some of the attributes of the tech industry”, said the importation of drugs manufactured overseas and the payment of royalties for the intellectual property behind them made tax minimisation possible for the industry.
The library agreed. It used the example of Johnson & Johnson which conceded in its Australian financial accounts that it makes “only those disclosures necessary” when it comes to reporting its tax. Johnson & Johnson paid $20.7 million in tax on declared profits of $69 million and sales of $1.47 billion.
The report cautioned that multinationals have “some legitimate claim to attributing some profit overseas if the R&D expenditure and intellectual capital underlying a particular product has occurred elsewhere”.
ATO Deputy Commissioner Mark Konza, a former auditor of pharmaceutical companies, also told senators the PBS made Australia a less profitable market for drug makers compared to the United States and Germany.
The Tax Justice Network spokesman Mark Zirnsak said the figures in the parliamentary report confirmed the need for a public inquiry into the tax contribution of big pharma. “They need to be asked to explain these numbers,” he said.
“This is more evidence why a crackdown on multinationals and the tax they pay must go beyond tech companies.”
Treasurer Joe Hockey told Parliament on Tuesday that the government was acting on multinational tax avoidance. “On budget night we released legislation that not only strengthens our anti-avoidance provisions but ensures that we can recover the tax that should be paid in Australia and apply a fine of up to 100 per cent plus interest on the tax that should have been paid,” he said.