Although most of their revenue comes from sales in the United States and overall profits are high, most large American pharmaceutical companies do not pay any taxes in the United States.
New analysis of corporate taxes paid by the largest U.S. pharmaceutical companies The Council on Foreign Relations survey found that the top seven companies by revenue had a combined U.S. tax liability of (-) $250 million in 2023.
CFR states that Pfizer (NYSE:PFE), Johnson & Johnson (NYSE: JNJ) and Merck (NYSE:MRK) has no U.S. tax liability in 2023 and may even have tax losses that can be carried forward.
AbbVie (NYSE: ABBV) does pay a bit of U.S. tax, but CFR authors Brad Setser and Michael Weilandt add that the company books profits from its blockbuster drug Humira (adalimumab) in Bermuda because the country has no corporate income tax.
The two also pointed out that many pharmaceutical companies reported losses in the United States in 2023, according to 10-K filings. AbbVie, $3.5B; Merck, $15.6B; and Johnson & Johnson, $2B.
However, Setser and Weilandt estimate that Eli Lilly (LLY) reported $0.9B in US profits.
Gilead Sciences (GILD) is an outlier among the big biopharma companies. It is the eighth-largest U.S. biopharmaceutical company by revenue, but will reportedly pay $3 billion in U.S. taxes by 2023.
Setser and Weilandt explain how pharmaceutical companies can book U.S. profits offshore to save on paying U.S. taxes. The first reason is the 2017 Tax Cuts and Jobs Act, which the pair said provided an incentive for companies to book more profits overseas by taxing foreign profits less than U.S. profits.
Second, because many drugs sold in the U.S. market are actually produced abroad, pharmaceutical companies decide to credit those profits to the country of production.
Finally, many pharmaceutical companies have transferred their intellectual property rights to wholly owned subsidiaries in jurisdictions with more favorable tax rates than in the United States
