GSK Gets Bill From IRS for $2 Billion in Back Taxes

GlaxoSmithKline's (GSK) long-running feud with the IRS heated up when the tax agency slapped the company with a nearly $2 billion bill for back taxes allegedly owed by legacy company Glaxo Wellcome.

The IRS claims Glaxo Wellcome owes the U.S. government $1.9 billion for taxes that went unpaid between 1997 and 2000, GSK said. If the IRS is successful in the claim, GSK would also owe the agency $700,000 in accrued interest. GSK received a similar bill for $2.7 billion in January 2004 for taxes the IRS alleged went unpaid from 1989 to 1996.

The tax dispute dates back to 1992 when the IRS initiated an audit of Glaxo Wellcome, the company that merged with SmithKline Beecham in 2000 to form GlaxoSmithKline.

The IRS alleges that Glaxo Wellcome employed a practice called "transfer pricing," which federal authorities assert is the subject of widespread abuse by multinational companies. Transfer pricing is an accounting method in which companies concentrate profits where tax laws are more favorable, enabling them to drastically reduce their tax burdens.

GSK said the IRS believes its U.S. business overpaid its British parent for drugs, thereby artificially reducing U.S. profits and lowering its U.S. tax payments.

The drugmaker said it disagrees with the allegation and believes it has paid all taxes owed to the U.S. government for the years in question. GSK noted that in the past, the UK's tax authority -- known as the Inland Revenue -- has sided with GSK in the dispute.