GlaxoSmithKline has settled the tax dispute with the Internal Revenue Service (IRS) for $3.1 billion, including federal, state and local taxes, interest and the benefit of tax relief on payments already made. The settlement covers a transfer pricing tax dispute dating from 1989 through 2005 that was to be decided by a trial scheduled for February 2007.
According to a company statement, the final payment fell within a $4.1 billion provision made by the company for tax liabilities. The company was exposed to a potential liability of $11.5 billion for 16 years of tax accounts between 1989 and 2005 that were disputed by the IRS.
In a statement, GSK said that the company has already earmarked enough money to cover the settlement and that the agreement is not expected to have any significant impact on the company's earnings. GSK also said it was confident in the "strength of its position" but decided that a settlement limiting financial exposure was in the best interest of its shareholders.
The dispute was centered on a disagreement between the IRS and HM Revenue and Customs in Britain, regarding Zantac profits. The disagreement between GSK and the IRS was about where the Zantac profit was earned and how much of the product’s value should be attributed to each jurisdiction. Developed and manufactured in the UK but widely sold in America, the U.S. tax bill depended on the transfer price (the value at which the drug was transferred to the group’s U.S. marketing subsidiaries).