How Pfizer's German Tax Problem Could Cost it $427M
Pfizer's (PFE) disclosure in a quarterly 10-Q filing with the SEC that it is under investigation in Germany over "tax matters" and "improper payments" in other foreign countries isn't news, even though the Wall Street Journal treated it as such Aug. 11. BNET readers were alerted to the probes back in October 2010 and, as Pfizer itself said, the company made an identical disclosure in its annual report (page 109) in February.
What the WSJ didn't do was explain why the feds are so interested in Pfizer's foreign doings. The "improper payments" probe almost certainly has to do with the fine Pfizer was required to pay by the Korea Fair Trade commission for wining and dining doctors in "fancy restaurants" and then fiddling its expense accounts and corporate credit cards to make the meals look like educational seminars. The DOJ will want to know whether those count as kickbacks under the U.S. Foreign Corrupt Practices Act, which bans American corporations from paying bribes to foreign officials.
Johnson & Johnson (JNJ) recently paid a $70 million FCPA settlement for corrupt payments in Greece, so Pfizer's financial liability in Korea is likely also minimal. Pfizer's share of the Korea fine was just $3 million. The main liability will be for any U.S. Pfizer executive who facilitated the payments -- they could go to federal prison.
Pforeign intrigue
Germany is another matter. According to Der Spiegel, prosecutors there believe Pfizer has avoided paying €300m (about $427 million) in tax to the government by shipping goods between Germany, Ireland and Belgium. Six Pfizer executives have been under investigation since 2006, and factories, storage depots, shipping departments, offices and private residences have been searched. The company is accused of intentionally obstructing the tax collection process.
Pfizer denied the allegations on its German web site in January:
The above allegations are unfounded. Pfizer has paid the tax authorities issued by the countries of the sales tax returns properly. After payment of the required sales tax amounts, the company has lodged appeal against the decisions in Germany and expects to clarify the difference in the tax assessment by the tax courts.The allegation is a common one. Drug companies claim their most valuable assets legally live in low-tax countries like Ireland or Luxembourg even though they are distributed and sold in the U.S. AstraZeneca paid a $783 million settlement for using such a scam; Schering-Plough paid $690 million.
Merck and GlaxoSmithKline have also been accused of claiming their operations are headquartered in Switzerland and Bermuda. Pharmaceutical tax avoidance costs the U.S. Treasury as much as $15.5 billion annually.
Related:
- Pharma to Feds: Hands Off Our Medicare -- and That $4.2B in Tax Breaks
- Does Your Company Pay Bribes in Foreign Countries? Now There's an App for That!
- Big Pharma's Secret Tax Problem: As Drug Patents Expire, the IRS Wants Its Pound of Flesh
- Why Big Pharma's $15B International Tax Dodge Is Coming To an End
- Pfizer's Little Tax Problem: $2B Bill Looms in 2011
- Inside Schering's $437M Tax Fraud: "It Doesn't Count If It's in Dutch!"
- How Merck Lost $2.3B in the Bermuda Triangle
- GSK's Alleged $1.9 Billion Tax Dodge Went Against Its Own Ethics Code