GSK pays $3.1 billion to settle transfer pricing tax dispute with US IRS

UK-headquartered GlaxoSmithKline has agreed to settle its drug transfer pricing tax dispute with the USA's Internal Revenue Service and will pay $3.1 billion. The IRS' contention was that GSK's US subsidiary had overpaid its parent company for drugs, including its former blockbuster antiulcerant Zantac (ranitidine) and asthma drug Ventolin (albuterol). The firm has also abondoned a claim to seek a refund of around $1.8 billion in excess income taxes.

The news, although in line with analysts' expectations, brought a sigh of relief to investors as GSK, the world's second-largest pharmaceutical company by sales, could have faced a demand of up to $15.0 billion in taxes and interest charges. Its shares moved up nearly 1% to L14.83 on the London Stock Exchange, while its American Depositary Shares edged 0.4% higher to $55.31 in afternoon New York trading on September 11.

The settlement covers the dispute period of 1989-2000 (when GSK was still only Glaxo Wellcome), which was due to go to trial next February, and also covers the subsequent years 2001-5, according to the company, which noted that it had previously made provision for the settlement and therefore this will not have any significant impact on its reported earnings or tax rates. The firm has not detailed the amount of its provision but observers believe it was around $4.3 billion.