AstraZeneca has settled a long-running tax dispute in a deal which sees HM Revenue & Customs refund tax payments that will now go to America instead.
The pharmaceutical company announced on Monday morning that US and UK tax authorities have reached an agreement over where it declares certain profits. The dispute over so-called "transfer pricing" dates back to 2002, and was the most significant of AstraZeneca's ongoing arguments with tax authorities.Under the agreement, AstraZeneca will pay out a total of $1.1bn (£689m) in taxes, substantially less than it had budgeted for. This means the company can unlock some of its outstanding tax provisions, increasing its earnings this year by $500m and raising its profit targets by almost 7%.
Its effective tax rate will also be slashed from 27% to 21%.
The deal means that AstraZeneca will receive tax refunds in several other countries, as profits are booked in the US instead. A spokeswoman confirmed that HM Revenue & Customs will hand back an undisclosed tax payment, which will then be passed on to America's Internal Revenue Service (IRS). She declined to say how much this would be, but insisted it was less than the headline figure of $1.1bn.
Throughout this period AstraZeneca was, of course, an active tax lobbyist. The AstraZeneca FD Jon Symonds, since 2007 with Goldman Sachs, did for example whilst at AstraZeneca chair the 100 Group of FTSE FDs. And just by chance whilst he was in that role he ensured that the FTSE 100 gave £5 million to fund the Oxford Centre for the Non-Taxation of Business. This was taken at the launch event:
At the launch reception, from left to right: Jon Symons, Chair of The Hundred Group; Dave Hartnett, Director General HMRC; Judith Freedman, Professor of Taxation Law, University of Oxford; Chris Wales, Goldman Sachs; Colin Mayer, Professor of Management Studies, Said Business School. (Photograph by Greg Smolonski).
Or as Accountancy Age put it:
The great and good of the tax world gathered to listen to Hundred Group chairman Jon Symonds and HMRC director general Dave Hartnett share a platform with a handful of handpicked and distinguished academics.
The exchange was mostly amicable ¬? Symonds and Hartnett are, after all, highly professional, polished and have worked on too many committees together to be anything other than cordial.
And yet the question remains - are such links appropriate when there is so much tax in dispute? I'm not sure. And can a company in such dispute sit on committees setting tax policy? Again, I'm not sure.
PS Accountancy Age are slightly incorrect in their reporting. Someone called Murphy asked some awkward questions at the same event, and for good reason, as history has proven.
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Jon Symonds doesn’t work for Goldman Sachs anymore. He’s now CFO of Novartis: http://www.novartis.com/downloads/newsroom/corporate-fact-sheet/CV_Jon_Symonds_EN.pdf
Isn’t the point here that AstraZenica will still have to declare these profits in the US? There’s not an “offshore” issue here is there? How much will this impact on AZ’s total tax bill?
You miss the point. Astra Zeneca settled with the IRS and will pay more US tax. The company says that the cost of the tax paid will be recovered as a credit against UK tax for the same period. That is not a concession from HMRC but simply a right that the tax payer always to credit foreign taxes paid against its UK tax liability. The company doesn’t benefit from the settlement.
Would appear at firts blush that this is a matter that was resolved between the US and UK authorities under the Mutual Agreement Procedure of the relevent Double Tax Agreement. If you know better, further information would be welcome.
Therefore I suspect your headline is totally misleading.
@Raul
You guys do write a lot of drivel
The deal gives a big profit boost to AZ and cuts effective tax rate to 21% from 27%
How is that no benefit for the company?
Please don’t dissemble here
You seem to have completely lost the plot Richard.
It is wholly explained by DTR.
@Jed Christiansen
Oh how silly of me
DTR takes almost a decade to agree and knocks 6% of the effective tax rate of AZ
Of course
How could I have been so silly?
Or maybe it’s you who is being utterly misleading? Because This is not DTR – this is transfer pricing – and you might not know this – but they’re not the same thing
Much as it pains me, I’m forced to agree with Richard here. This looks very much like transfer pricing. Where I disagree is that this sounds very much like an advance pricing agreement (APA) being agreed between the UK and the US tax authorities – whilst AZ will have submitted the APA in the first place the ultimate agreement is between the two tax authorities.
I suspect that the fall in the ETR is due to tax provisioning methodology at AZ. Before the APA was agreed AZ would have calculated their tax provision at a higher price than that eventually agreed in the APA. The lower (I assume) price of the APA meant that the taxable profits of the relevant entity were then overstated in one country (the UK) and understated in the other (the US), hence the payment to the IRS. With the APA price being agreed between tax authorities, the balance of the provision was not longer needed, hence the drop in the ETR. I suspect that the level of the ETR at 21% is just for this year and will go up in future years.
Richard (#2). That would appear to be the case from the AZ press release on the website, this was the conclusion of an APA agreed between HMRC and the IRS. It would follow that the tax would shift between the US and the UK.
It would follow that your second point is also true in that AZ had overprovided for the tax due and can now release that provision. For those of us who have been around for some time, this used to be the way that tax was accounted following the principle of prudence. What is strange is that prudence is not a fundamental principle under IFRS and presumably the current tax provided by AZ was what they expected to pay. Somehow this was agreed at £500m less by the tax authorities.
@Iain
Completely agree – this is the way we did things in the 90s, ie: use prudence under UK GAAP. Exactly the same thing happened at one of the corporates I worked for in the 90s, so this is nothing new.
Completely agree that prudence has been relegated to an also ran under IFRS. Haven’t figured that one out yet. Whenever, I start to talk about prudence these days, the others nod their heads as of to say “humour him”..