GSK TO PAY $3.1 BILLION IN U.S. TAX SETTLEMENT

GlaxoSmithKline (GSK) has settled a 16-year-old tax dispute with the U.S. IRS and will pay the government $3.1 billion, the company announced Sept. 11. The settlement will not affect earnings, as the company had already put the money aside, GSK said.

At issue was the use of transfer pricing, a practice in which a company sells or transfers products between its operations. If this is done to concentrate profits in countries with favorable tax rates, the government considers it tax evasion. IRS regulations restrict the rate of these transactions to what would have normally occurred between two separate companies under the same circumstances.

In this case, the IRS claimed that GSK's U.S. division overpaid for products from the British headquarters, lowering both its U.S. profits and tax liability.

The settlement covers the period between 1989 and 2000, when the company's name was Glaxo Wellcome, and 2001 to 2005, after it merged with SmithKline Beecham.

The case was scheduled to go to trial in February of next year. GSK said it "was confident in the strength of its position," but concern over financial exposure and the cost of litigation led it to settle.