GlaxoSmithKline will pay the US government $3.4 billion—the largest tax settlement ever paid to the IRS—to end a decades-long dispute over financial dealings that ultimately allowed the British drugmaker to lower its US tax bills for nearly two decades.
The settlement stems from charges by the IRS that Glaxo’s American unit improperly overpaid its British parent for drugs, mainly the blockbuster antiulcer drug Zantac, from 1989 through 2005, The Wall Street Journal reported.
The IRS said those overpayments helped reduced the company’s profit in the US, consequently lowering its US tax bill.
The accounting practice is referred to as “transfer pricing” or the art of attaching a monetary value to trademarks, patents research and other intangibles that one arm of a multinational company transfers to another.
Glaxo told The Journal that despite the massive size of the settlement, it won’t have any significant impact on the company’s reported earnings. Glaxo’s COO Julian Heslop said the company was confident it would prevail in the case but settled because of the time and the cost of litigation, which had been expected to last two to three years, including the “inevitable appeals.”