Pharmaceutical giant AbbVie generates almost all of its sales in the U.S. but has allegedly exploited former President Trump’s tax law to shield much of its sales from taxes, according to an interim report released Thursday by Democrats on the Senate Finance Committee.
The report details how loopholes in the 2017 tax law have allowed AbbVie, a large multinational corporation headquartered in the United States, to substantially shrink its tax burden and stash profits overseas to avoid paying U.S. taxes on prescription drug sales.
The report comes as Democrats are working to try to roll back those changes and remove incentives for corporations to use overseas tax shelters. Finance Committee staff in the report noted the price of inaction on international tax reform.
“It is imperative that Congress enact needed international tax reforms that would close loopholes that allow drug companies like AbbVie to stash their profits in tax havens,” they wrote.
AbbVie makes the arthritis drug Humira, which has been the best-selling drug in the world for several years. Over the last four years, AbbVie has $62 billion worth of Humira in the United States.
According to the report, AbbVie generated over $56 billion in worldwide sales in 2021, with over 77 percent made to American consumers, yet just 1 percent of AbbVie’s income was reported in the United States for tax purposes.
The company was allegedly able to accomplish this by taking advantage of Trump’s tax law, which changed how companies calculate their tax bills on profits generated internationally.
“While Big Pharma’s game playing to avoid paying taxes is no secret, the scope of AbbVie’s tax avoidance is eye popping,” Finance Committee Chairman Sen. Ron Wyden (D-Ore.) said in a statement. “It’s critical that Congress takes steps to fix this broken system, so nurses and firefighters aren’t paying higher tax rates than Big Pharma.”
AbbVie did not immediately respond to a request for comment.
According to the report, AbbVie holds its intellectual property like patents and trademarks in a Bermuda-based subsidiary with no employees or other major operations. The company manufactures the drug substance for Humira at a branch in Puerto Rico, fills syringes, and then sells those syringes to AbbVie’ in the U.S.
This tactic means the subsidiary is effectively a tax resident in Puerto Rico, and the associated income from sales to AbbVie’s U.S. operations are reported on a Puerto Rico tax return. This means income from Humira is taxed at a much lower rate than if the company was based in the U.S., because of the 2017 tax law.
AbbVie paid an effective tax rate of about 8.7 in 2018 after the law took effect; it was more than double that amount in 2017. AbbVie estimates its tax rate in 2021 will be 12.5 percent.
The report’s authors noted the tax law made it easier for large corporations to use subsidiaries in offshore tax havens to pay tax rates that “are a fraction of that paid by the average working American family.”
The report indicated the committee is working on a broader investigation into the effects of the tax law on pharmaceutical companies’ profits. Wyden has demanded similar documents from two other drugmakers, Merck and Abbott.
“To date, other entities contacted by the Committee, including Merck & Co. and Abbott Laboratories, have refused to substantively cooperate,” the report stated. “However, the Committee intends to continue its investigations in order to provide Congress and the public with a complete understanding of the effects of the 2017 Republican tax law on the pharmaceutical industry.”
