Pfizer Forced to Deny Reports of Avoiding VAT: Accusation of Elaborate Euros 300 Million Tax Scheme: German Authorities Investigated Six Managers

From Guardian (UK) (January 31, 2011)


The world’s biggest pharmaceuticals company was yesterday forced to deny it had deployed an elaborate tax avoidance scheme to dodge a euros 300m (pounds 257m) bill owed to the German government.

Investigations into Pfizer, the American drugs group, manufacturer of Viagra, are said to have spread to Ireland and Belgium amid allegations the company avoided value added tax payments for years.

According to information acquired by Der Spiegel, the German magazine, tax investigators accuse the multinational of having "intentionally obstructed" the "necessary gathering of tax information" and to have avoided significant tax payments.

The state prosecution in Mannheim, as well as tax investigators have been scrutinising six Pfizer managers since 2006. They have searched factories, storage depots and shipping departments as well as offices and private residences of the managers.

Prosecutors have asked the authorities in Dublin and Brussels to co-operate with the enquiry.

Officials are reported to be concerned with the way Pfizer organizes its European business and how it declares taxes. But the firm last night issued a statement, saying: "Pfizer has operated in accordance with the tax regulations in Germany and therefore believes the claims made in the Der Spiegel piece are unfounded.

"In fact, Pfizer paid to the Federal Republic of Germany the VAT that the German tax authorities have alleged was under-reported by Pfizer."

In Britain, hundreds of big companies use complex arrangements to restrict the sums of cash they pay to the Exchequer.

An investigation by the Guardian last year uncovered some of the ingenious and perfectly legal tax strategies employed by these companies. Some of the schemes - devised by highly-paid accountants and lawyers - had obscure names such as "Dutch sandwich", "double Luxembourg" and "thin capitalisation".

High street banks are among the groups that have been accused of tax avoidance. Whistleblowers alleged that Barclays set up a series of schemes to avoid paying hundreds of millions in tax. The schemes were said to be so complex that HM Revenue and Customs struggled to unravel them. Internal memos suggested that these schemes involved an intricate circuit of offshore Cayman Islands and Luxembourg companies. Barclays went to court to obtain a gagging order banning the Guardian from publishing the documents. The bank has vigorously denied all allegations of tax avoidance.

Diageo, the drinks company, was reported to be paying a relatively small amount of tax. The firm transferred the ownership of lucrative brands, such as Johnnie Walker and Gilbey's Gin, to a subsidiary in Holland, where little tax was paid on profits. Diageo said it "pays all taxes we are obliged to pay, and we have now settled all the issues with HMRC relating to the transfer of our brands businesses to the Netherlands and their ongoing operations".

Two big drug firms, GlaxoSmithKline and AstraZeneca, made arrangements so that their brands are owned in low-tax locations in the Caribbean. It means their UK operations paid royalties to the subsidiary in the tax haven reducing profits and the tax due in Britain.

GSK said it was a "widespread and totally accepted practice". The firm could bring its trademarks back to Britain following the government's offer to reduce corporation tax on profits generated from the fruits of UK research.

AstraZeneca said there was nothing wrong with the practice and all transactions were disclosed to HMRC.


 

Posted: February 2011


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