Pharma firms stash profits in Europe's tax havens

[em500]

I quickly went through the 10 largest European/American biomedical companies by revenue in Google Finance (Johnson & Johnson, Roche, Merck, Pfizer, AbbVie, Bayer, Sanofi, AstraZeneca, Novartis, Bristol Meyers). AFAICT the only one that beat the SP500 in total returns in the past 5 years was AbbVie. Many even trailed short government bonds or savings account returns. So for all the eye-watering gains in tax havens the owners/shareholders didn't seem have much to show for them.

[MagnumOpus]

Away from the discussion of the last 5 years being the years of LLM and AI boom and those mega caps exposed that hype driving the SP500, you didn’t list Europe’s largest company by market cap: Novo Nordisk increased 7 times in value in the last five years…

[xorcist]

Why would have shareholders get extra returns from this scheme? Lowered taxes is a one off event.

If you had constantly lowered taxes, like we had constantly lowered interest for a couple of years, then that could have been expected to be reflected in the share price.

Or if you could isolate a short time period when they started doing this, then that would have affected earnings and likely the share price. But once that is the way the business operates, why would shares continue to rise? It does not make sense.

[Jensson]

These things are already priced in, the stock traders has known these things for decades so the returns are about the same as most other things as you would expect.

High returns comes when stocks do better than expected, these companies are expected to fleece people to hell and make massive profits so when they do that it is just the expected thing happening meaning normal return on investment.

[rixed]

Profits (the money the company makes) are not the same as total return (the money one makes by trading that company's stock on the second hand market plus the arbitrary value distributed to stockholders, usually close to 0), are they?

[francisofascii]

What were the total returns?

[gosub100]

So it's okay to cheat the system if your business is losing money?

[ok_dad]

I’m an American citizen, and no matter where I go, I owe the IRS taxes on what I make, even if the USA isn’t involved otherwise.

Question: why can’t we do the same for corporations in the USA? The equivalent action might be to only allow a company to expense money spent inside the USA and thus they can’t just license themselves all their own technology and patents which are held in a one person office in Ireland.

I’m sure I’m simplifying things too much, but I’m tired of the two tiered tax system where regular people pay for everything and corps reap the rewards.

[gruez]

You can probably dodge the taxes too by incorporating a company in a tax haven, "working" for that company, and then selling your services through that company. The company can pay you a minimal wage, which would be taxed, but everything else can be stashed in that company tax free.

[akudha]

Because you didn’t hire lobbyists to work on your behalf, didn’t fund elections etc…

[gamblor956]

A U.S. corporation that directly does business around the world is also subject to tax on its worldwide income.

Most companies big enough to be doing business around the world do so through separate companies.

[me_me_me]

well you would have to stop taxing profits and tax revenue.

Otherwise there is no way to stop companies doing the licensing Intellectual Property trick to bring profit to near zero.

But the people who would have to do it and the people who sponsor them into the office would lose a lot of money. So it will not be done.

Recently the Panama papers investigation was concluded and no wrongdoing was detected.

One thing begs a question why were the journalist responsible killed in a car bomb? As far as I checked a car bomb is not a random event.

[badpun]

If you allow companies to expense only money spend inside the US, you break their international supply chains.

[miohtama]

Meanwhile Amazon pays 0% tax

[dantheman]

It's fundamentally immoral and something the US should repeal.

[yieldcrv]

correction: you have to report your earnings to the IRS, that doesnt mean there is anything to pay

corporations are under almost the same tax regime

[kick_in_the_dor]

Counterargument: At the end of the day, the ones reaping corporate profits are themselves people, who should be paying their income taxes, no?

[bobmcnamara]

FYI: The FEIE was $120k last year.

[fifteen1506]

Because jobs

[balderdash]

A. Do you live abroad? Every us citizen I know that lives abroad DESPISES their tax treatment so it’s the first time I’ve heard someone say that.

B. Corporations are owned by people (perhaps a very disparate group of people via pension plans, 401ks, etc) and the tax man eventually gets a piece

[Loic]

For me, this says everything:

> The structures helped the company [Bristol-Myers Squibb (BMS)] reach an effective corporate tax rate of 4.7 per cent, far below the US statutory rate of 21 per cent.

[koolba]

The real answer to all of this is scrap the corporate tax rate entirely. It’s only 6% of the total revenue the government takes in anyway.

The main payers are not these large corporations, it’s the little guy who can’t retain earnings year over year without paying that statutory rate. The little guy doesn’t have offshore entities and transfer pricing. And these little guys are 75% of corporate tax receipts!

Scrap the whole thing and this shell game disappears.

[Havoc]

>Delaware took the top spot with 700 entities.

Europe is further west than I though

[jampekka]

This is what "competitive" or "business friendly" tax policies look like. Sometimes also known as race to the bottom.

[eastbound]

As it costs almost nothing for the country to host a multinational company, there is no pushback on the minimum corporate tax.

The question is, why do the countries tax something that doesn’t cost them anything to host.

[melenaboija]

It is a sad example the one they give, being Irish though makes me think a bit deeper.

Citizens from EU not being the Netherlands or Ireland have to witness how international big corporations pay taxes in countries different to the ones they are doing their business and big local companies moving their headquarters to neighbor countries. Which benefits their citizens.

[atmosx]

It’s way worse. Mediterranean countries have free education system that produce engineers, doctors, etc that they can’t keep, because they can go to the Netherlands or the UK for bigger career opportunities and salaries. At a personal level is “an amazing opportunity” at a country level it’s a vicious cycle that increases the gap, a real tragedy.

[Cthulhu_]

> how international big corporations pay taxe

That's the neat part, they don't

[rqtwteye]

Obviously this will all go into research.

[Bilal_io]

Research for a better villa and yacht for the CEO

[asdff]

Like every firm in every sector, in other words. Writing this from a computer designed in california, built in china, marketed by a company incorporated in ireland.

[balderdash]

How about some BMY facts ($usd thousands) Earnings before taxes: 2019 FY: 4,975,000 2020 FY:(6,871,000) 2021 FY: 8,098,000 2022 FY:7,713,000 2023 FY: 8,440,000

Taxes paid: 2019 FY: 1,515,000 2020 FY: 2,124,000 2021 FY: 1,084,000 2022 FY: 1,368,000 2023 FY: 400,000

Effective tax rate: 2019 FY: 30.45% 2020 FY:NM 2021 FY: 13.39% 2022 FY: 17.74% 2023 FY: 4.74%

Average tax rate paid last five years looks closer to 29% to me…

[Theodores]

At any time we could have a change of circumstances and need the products of the big pharmaceutical companies for the rest of our lives.

I feel morally obligated to keep myself fit and healthy as a personal boycott of the pharmaceutical companies. This means taking care of nutrition and being physically active. This provides no guarantee of not needing their products, however, not doing this makes it inevitable that I will need their products.

It is no accident that Western democracies allow companies to park their profits in tax havens, tax havens that are typically provided security and defence by the likes of Great Britain due to former colonial ties. Sanctions should apply to countries that have these tax loop holes.

[blackeyeblitzar]

Aren’t these just standard practices that basically all multinational companies do? I’m not saying it is the right thing, but I think it is broader than just pharmaceuticals.

[jll29]

"Investigate Europe can reveal that the 15 largest European and US drugmakers, including BMS, publicly disclose over 1,300 subsidiaries in tax havens and low-tax territories. These jurisdictions offer corporations low taxes or ways to shift profits (sometimes both). In Europe, researchers and activists generally agree that they include Ireland, the Netherlands, Switzerland and Luxembourg."

The nasty secret is called "transfer pricing", which is permissible under OECD rules, which permits companies to claim their headquarters are whereever they want (so they choose a low tax jurisdiction), when everybody knows that their "real headquarter" is not there (including their own Website, which names an entirely different place as their HQ). One such loophole the "Double Dutch-Irish Sandwich" was closed two years ago, but plenty of other ways remain.

It is a bit unfair to "Big Pharma" (or Apple) to single them out, because lots of other corporations do the same. For example, just check the Canton Zug (CH)'s ratio between companies registered there (29k?) and people living there (25k?). I have not seen a single political party offering in their manifesto to fix this... meanwhile large corporates create shell companies owned by other shell companies licensing brands to third shell companies while receiving loans from fourth parties etc. etc. - typical money laundering patterns like organized crime, yet entirely legal at the moment.

In my opinion, everyone who is a Director of >50 companies should be investigated for fraud to begin with, and rules for determining companies' true headquarter should be changed so they cannot be freely chosen "only for tax purposes".

[doikor]

There is some interest in trying to fix this. Mainly with a global minimum corporate tax rate in the OECD as this can’t really be fixed by individual countries.

https://en.wikipedia.org/wiki/Global_minimum_corporate_tax_r...

Though remains to be seen when it will actually go fully into effect and when/if all the various loop holes will be closed.

[steveBK123]

Pretty sure Mag7 do the same

[2OEH8eoCRo0]

They don't use the Cayman Islands like everyone else?

[ginkgotree]

A real shocker

[willsmith72]

i thought there was talk of Ireland finally increasing its corporate tax rates. the current situation is insane

[jrh3]

Why is this article on HN?

[pompino]

>The little-known structures in tax-friendly destinations have contributed to the 15 pharmaceutical firms amassing profits of €580 billion in the last five years.

>This amount outweighs their research and development (R&D) costs, despite the industry's frequent claim that high drug prices allow them to innovate and design new drugs.

R&D is one thing, but most drugs fail at the clinical trial stage. This money (hundreds of millions per drug) is just gone, unlike R&D which might result in new tech or at least a patent. For Oncology its even worse, its close to a 95% failure rate. Simply taxing companies won't make their drugs successful. Large pharma companies rely on a few blockbuster products for their profits and they milk them dry. This is standard corporate greed/behavior, but it certainly seems offputting because we're dealing with peoples lives. Personally, I think its inevitable that there is going to be some form of nationalization for a protected class of life-saving medication.

https://www.labiotech.eu/trends-news/clinical-trials-success...

[jorams]

> R&D is one thing, but most drugs fail at the clinical trial stage. This money (hundreds of millions per drug) is just gone, unlike R&D which might result in new tech or at least a patent.

Are you saying the clinical trial stage is somehow not part of R&D spending? It sounds like quite obviously research to me, but I'm not familiar with how it's actually reported.

[lawlessone]

>This money (hundreds of millions per drug) is just gone,

Is it completely wasted? we learn something doesn't work. It's not fantastic like it would be to find drugs that cure things , but we still learn.

[Aerroon]

>Personally, I think its inevitable that there is going to be some form of nationalization for a protected class of life-saving medication.

Wouldn't it make sense for governments to just run their own drug manufacturing company? All the drugs from expired parents are free game.

[tomrod]

I might be mistaken, but don't c-corporations split out R&D (money invested back into the company) from profit?

I'll admit I'm not as well read on the day-to-day reporting as I'd like to be.