May 11,2023

Wyden Releases New Findings in Ongoing Pharma Tax Investigation

Democratic Staff Investigation Found 2017 Republican Tax Law Cut Big Pharma’s Tax Rate by 40 Percent; U.S. is Big Pharma’s Biggest Market, But Drug Companies Report 75 Percent of Profit Overseas

Washington, D.C. – Senate Finance Committee Chairman Ron Wyden (D-Ore.) today released a new Democratic staff memorandum with updated findings from his ongoing investigation into Big Pharma’s tax practices. The memorandum reveals for the first time the full extent of the tax break Republicans handed Big Pharma in their 2017 tax law: Big Pharma’s average effective tax rate fell by more than 40 percent in the years after the law was enacted. Despite the fact that the U.S. is by far the industry’s largest market, the investigation also found that Big Pharma reports 75 percent of its profits overseas, which allows these hugely profitable companies to pay tax rates lower than many middle class Americans. The committee expects to release its final report later this year. 

“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. Republicans handed Big Pharma a 40 percent tax cut,” Wyden said. “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. The result is that Big Pharma gets us coming and going--they charge Americans sky high prices and they pay absolute rock-bottom taxes, not anywhere near a fair share. It’s simply appalling that multinational drug companies raking in many billions of dollars in profits are paying taxes at lower rates than middle class families. Democrats are focused on fixing our international tax code, cracking down on tax gaming and ensuring corporations including Big Pharma pay a fair share.”

Senator Wyden began his investigation of Big Pharma’s tax practices in 2021. In 2022, he released an interim report detailing how the pharmaceutical giant AbbVie used offshore subsidiaries to avoid paying billions of dollars in taxes on prescription drug sales. Subsequently, the committee obtained similar information from four other large U.S. pharmaceutical corporations: Abbott Laboratories, Amgen, Bristol Myers Squibb, and Merck. The committee also received tax data from the Joint Committee on Taxation pertaining to Pfizer and Johnson & Johnson. 

The key findings released today include:

  • The 2017 Republican tax law cut Big Pharma’s taxes by more than 40 percent. From 2014 to 2016, the industry paid an effective tax rate of 19.6 percent on average. In 2019 and 2020, it paid just 11.6 percent.
  • Big Pharma reports 75 percent of its taxable income in foreign subsidiaries. Even compared to other multinationals, Big Pharma’s profit shifting is extreme. Averaging across many multinational corporations, Big Pharma’s share of offshore income far surpassed both non-manufacturing companies (22 percent) and manufacturers outside of the pharmaceutical industry (45 percent).
  • Billions of dollars in U.S. sales of blockbuster drugs are taxed as offshore income. 
    • For example, Merck sells a cancer-fighting drug called Keytruda at a list price of $175,000 per year, per patient. From 2019 through 2022, Keytruda sales in the U.S. exceeded $37 billion, with much of that coming from taxpayer-funded programs including Medicare and Medicaid. Nearly all the income from those sales was taxed as offshore income.  
    • Amgen charges more than $100,000 per year, per patient for its arthritis treatment Enbrel. The company acquired the rights to Enbrel in 2002, has raised its price 27 times, and has made more than $70 billion from sales of the drug. In 2021, Amgen generated 38 times more Enbrel sales revenue in the United States than the entire rest of the world combined, but 40 percent of the sales were taxed as foreign income.
  • The IRS is challenging certain Big Pharma profit shifting structures, including Amgen’s. The IRS is claiming that Amgen inappropriately shifted $24 billion in income to subsidiaries in Puerto Rico, which is treated as foreign for tax purposes. Responses provided by Amgen to the Committee suggest that the structure being challenged by the IRS, which enables Amgen to generate a lion’s share of its profits in foreign tax jurisdictions, remains in place today.

A copy of the Democratic staff memorandum, which includes these and other findings in greater detail, is available here. 

Chairman Wyden’s 2022 interim report on AbbVie’s tax practices is available here.  

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Contact: Ryan Carey