How Pfizer has shifted U.S. profits overseas for years

How Pfizer has shifted U.S. profits overseas for years - Yahoo Finance

"Pfizer has used transactions
between companies within its group to allow an Irish subsidiary based in
Ringaskiddy - Pfizer Ireland Pharmaceuticals - to buy the rights to
patents developed in the United States and then use them to make drugs
which are sold back to U.S. affiliates.

Even
though the Irish and other overseas units pay $3.2 billion a year in
royalties to use such patent rights, the higher prices at which Pfizer
in the United States imports manufactured drugs from affiliates means
almost all the profits from these drugs are reported overseas.

Drugs
which were discovered in the United States, manufactured in Ringaskiddy
and sold back to the United States include anti-cholesterol treatment
Lipitor - the best-selling prescription drug of all time - and epilepsy
drug Lyrica, which generated revenue of over $5 billion last year for
Pfizer."

...

"

Pfizer does have manufacturing
plants in the United States but filings for its overseas units show
non-U.S. companies supply over 80 percent of U.S. sales.

Those
sales generate margins of around 40 percent for Pfizer's overseas arm -
earning it over $17 billion in 2013. However, Pfizer has reported
losses on its U.S. business in each of the past five years.

Pfizer
said it follows the "arm's length" tax principle when conducting
inter-company sales and purchases. This says companies should transact
with affiliates at the same prices unconnected companies would.

However,
academics say it is very hard to judge whether inter-company sales of
unique products like patented chemicals, for which there is no
independent open market, are conducted at prices that independent
companies would agree to use.

"The
current arm's length rules are always difficult to enforce because of
the lack of a comparable price (in the drugs industry)," said Edmund
Outslay, tax accounting professor, Eli Broad College of Business at
Michigan State University" 

...

" Ed Kleinbard, Professor of law
at the University of Southern California said the company's arrangements
reflected "aggressive tax planning" and it seemed, from the outside, to
be almost as capable in tax planning as pharmacology.

"This is a company that is investing heavily in tax research, as well as pharmaceutical research," he joked."