AstraZeneca to pay £505m to settle tax dispute

The company will pay the tax bill in two tranches

Drug company AstraZeneca has agreed to pay £505m ($780m) in back taxes stretching over 15 years to settle a dispute with HM Revenue & Customs.

The dispute hinged on transfer pricing, in which one division of a company sells goods or services to a division in another country.

If that foreign country has lower tax rates then the company can cut its tax bill by declaring its profits there.

AstraZeneca said it would pay £350m in March 2010 and £155m in March 2011.

Last year the company said it had already made provision to pay the cash if it lost its argument with the Revenue.

"There are other examples in the pipeline but not necessarily as big as this," said Mike Warburton of the accountants Grant Thornton.

Huge sums

Transfer pricing has been a technique used for many decades by international companies to declare their profits in countries where corporate taxes are lower.

It is very difficult to establish what is a fair share all round John Whiting, CIOT

In the UK, HMRC has been progressively tightening up the law on the issue - embodied in schedule 28 AA of the Income & Corporation Taxes Act.

At first the disputes centred on the sale of goods, but they are now more frequently related to payments for services and patents.

In 2006, drug firm GlaxoSmithKline paid $3bn to the US tax authorities to settle a similar dispute.

John Whiting, of the Chartered Institute of Taxation, said international companies often faced genuine problems.

He said these lay in the fact that the tax demands of the numerous countries the firms operated in sometimes added up to far more than the tax that might be applied if the company operated in just one country.

"The sums are huge and the disputes can rumble on for 20 years quite easily," Mr Whiting said.

"It is very difficult to establish what is a fair share all round."

Complex

Chas Roy-Chowdhury, of the accountancy body ACCA, said there were many similar disputes between companies and tax authorities going on in many other countries.

"I do not think that AstraZeneca will have been trying to pull the wool over the eyes of the Revenue," he said.

"But to succeed what you have to do is produce documentation to prove the prices you charge yourself are the same as you would charge a third party, such as an outside customer.

"The amount of money sounds big but when you compare it to the sums a company like AstraZeneca spends it is not as big as it sounds," he added.

AstraZeneca said: "Under the agreement, AstraZeneca will pay £505m to HMRC to resolve all claims made by HMRC in relation to this issue for the 15-year period from 1996 to the end of 2010.

"The settlement also resolves certain other outstanding UK tax matters.

"As previously disclosed, AstraZeneca has provided in its accounts for the outcome of this issue, at the heart of which are complex transfer price considerations that have taken many years to resolve," it added.

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