£££ Drug companies embroiled in tax row £££

Source: baltictimes.com

Aug 22, 2007
By Kimberly Kweder

International pharmaceutical companies operating in Lithuania have become involved in a dispute with the State Tax Inspectorate after the latter accused them of tax evasion and demanded they pay up. The controversy stems from an audit of the activities, since 2005, of several pharmaceutical companies operating in the country. The audit concluded that some Lithuanian branches of international pharmaceutical dealers, whose activities are purportedly limited to marketing, were in fact engaged in trading activities, and therefore should be taxed on products sold.

“According to the findings of the STI audit, activity of some undertakings in Lithuania is not limited to marketing functions alone, i.e. the collected data shows that in fact, trading activity is also in place,” Mr. Darius Alinskas, Deputy Head of State Tax Inspectorate, told The Baltic Times. “During the tax audit, evaded taxes shall be estimated and sanctions anticipated in tax laws shall be applied, i.e. surcharges for late payment and respective fines. Although, we would like to underline that the key objective of the Lithuanian Tax Administration is to stop tax evasion and future utilization of operational models designed for the purpose of tax evasion,” he said. While the STI is not allowed to comment on which specific companies it says were involved, the marketing branches of Eli Lilly, Pfizer and AstraZeneca have come forward to say that they would fight the STI’s demands that they pay.

“We know we can defend our case. They [tax authorities] have the wrong address. We are good corporate citizens and will continue this way,” said Pfizer’s Luxembourg General Manager Raimundas Voihska. Voishka said that the STI was attempting to tax the companies’ Lithuanian branch based on sales invoiced by their parent company in Belgium. Eli Lilly, Pfizer and AstraZeneca branches say they are exempt from the sales tax because they’re not involved in the sales, only in marketing the products. “It’s totally nonsense,” he said. “Which law have we broken?” “They [tax authorities and the government] want to show power and repatriate money. They believe at this rate, they can reduce prices in the pharmaceutical market,” he added. General Director for Lithuania’s AstraZeneca branch Saulius Sabunas also disagrees with the tax authorities’ assessment of the situation. “We don’t sell medicines, we sell ideas,” as he was quoted on LRT’s Web site.

Lithuanian media has estimated the overall amount of taxes the state could be losing each year from tax evasion by the pharmaceutical industry at 100 million litas (29 million euros). Alinskas, however, puts the figure at about half that. “Following calculations, we can make a conclusion that branches of foreign pharmaceutical undertakings – while concealing their factual trading activity – could have evaded up to 50 million of tax per year,” he said.

Last year U.K.-based GlaxoSmithKline (GSK), one of the largest pharmaceutical companies in the world, was forced to pay $3.4 billion to the IRS to settle a transfer pricing dispute dating back 17 years. The IRS alleged that GSK improperly shifted profits from their U.S. to the U.K. entity.