GlaxoSmithKline, the pharmaceuticals group, today said it will pay $3.1 billion (£1.7 billion) to settle a tax dispute with the US Government.
The settlement covers a dispute involving transfer pricing with the US Internal Revenue Service dating back to 1989 which was due to go to trial in February next year.
Glaxo said it had previously made provision for the dispute and the settlement, the largest in IRS history, would not have any significant impact on the company’s reported earnings or tax rate.
The group said in a statement that although it had been confident of its posistion, “in view of the size of the potential financial exposure, as well as the continued level of resource being applied to the case, GSK concluded that it was in the best interests of its shareholders to reach this settlement.”
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The agreement covers a transfer pricing dispute for the tax years 1989 through 2000 and separate tax issues for the 2001-2005 period.
Transfer pricing generally refers to the practice of multinational company’s booking revenuees in countries with favourable tax regimes.
Under the settlement, Glaxo will also abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, the IRS said.
IRS commissioner Mark W Everson said: “We have consistently said that transfer pricing is one of the most significant challenges for us in the area of corporate tax administration ... The settlement of this case is an important development and sends a strong message of our resolve to continue to deal with this issue.”