Merck – $5.5 billion of disputed tax

Posted on November 9 2006

The Wall Street Journal has reported that the US drug company Merck has no less than $5.58 billion of tax disputes open with the IRS.

The company has just over $6 billion in cash reserves.

This sort of revelation, which has massive impact on the potential value of the company, more than justifies the disclosure of tax risk previously referred to on this site and for which the Tax Justice Network lobbied. And it also explains why the corporate world did not want such disclosure.

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4 Responses

  1. david barker says:
    November 10 2006 at 8:06 pm

    International accounting standards determine when a provision should be made for liabilities. These are accepted standards for all liabilities.
    Why should there be a special disclosure to cover (usually inflated) tax assessments raised by overaggressive tax authorities.
    Also it is possible that competent authority may be availble for cross border transactions

  2. Tax Research LLP says:
    November 13 2006 at 10:40 am

    David

    You seem to miss the point that FASB has decided that this is approproiate – and rightly so. There is considerable risk in thi area, as ample experience proves.

    And, those usually inflated claims (as you put them) are frequently paid. Which might be some evidence in itself.

    Richard

  3. david barker says:
    November 14 2006 at 11:18 am

    Richard

    I do not understand the point. International accounting standards determine when any provision should be made based on probability of them crystallising. Why is tax different. Are we saying that provioning in general is incorrectly accounted for?
    Often as mentioned international claims can be solved in the EU through the arbitration convention so the headline numbers we see are not net of any relief.
    I certainy can not believe that you are saying that just because an inspector sends a tax assessment it should be recorded in teh accounts without considering its validity and probability of paymenty?

  4. Tax Research LLP says:
    November 14 2006 at 11:55 am

    David

    Please read what FASB has to say (linked from this site). Then you might understand the issue I am discussing.

    Richard