GlaxoSmithKline (GSK) announced that, as part of its long-running dispute with the US Internal Revenue Service (IRS), the company has now received a claim for additional taxes that the US government asserts legacy company, Glaxo Wellcome owes for the years 1989 to 1996. This "statutory notice of deficiency" for $2.7 billion (£1.5 billion) in tax, principally relates to the allocation of taxes on profits for Glaxo heritage products between the US and other countries. To the extent that the IRS is successful in its claim, interest would be payable. GSK estimates the interest on the full claim to date would be approximately $2.5 billion (£1.4 billion), net of federal tax relief. As similar tax issues remain open for 1997-2000, GSK believes it will also receive an additional assessment for this period.
Disagreements with and between revenue authorities as to tax allocations between related companies in different tax jurisdictions are inevitable for a global business such as GSK. Before receiving this notice, the company attempted to resolve the dispute by referring it to negotiations between the US and UK tax authorities. The company believes these discussions collapsed when the UK supported the GSK position that no additional taxes were due to the IRS.
The company continues to believe, based on external professional advice, that it has made adequate provision for tax liabilities, which could arise from these tax assessments. However, there continues to be a wide difference of views between GSK and the IRS. GSK considers that the additional tax claim by the IRS on Glaxo heritage products is inconsistent with the treatment of other pharmaceutical companies, including GSK legacy company SmithKline Beecham.
GSK plans to contest this claim for additional taxes by filing a petition in the US Tax Court, where a trial is not expected until sometime in 2005-2006.
GSK also continues to believe that the profits reported by its US subsidiaries for the period 1989-2000, on which it has paid taxes in the United States, are more than sufficient to reflect the activities of its US operations.