Harvoni, a drug for treating Hepatitis C made by Gilead Sciences. (courtesy of Gilead Sciences, Inc.) 
 
 Over the last few years, Gilead Sciences has grown into one of the world’s largest pharmaceutical companies, fueled by the sales of expensive specialty treatments for hepatitis C. The company’s revenue has tripled since 2012, to $32.6 billion last year. 
 
 According to a report to be released Wednesday, Gilead has also developed another specialty: Avoiding billions in taxes. 
 
 The California-based pharmaceutical giant moved some of its assets to Ireland, apparently allowing income from some U.S. drug sales to be shifted abroad and taxed at a lower rate, according to Americans for Tax Fairness, a liberal advocacy group. It has also avoided nearly $10 billion in taxes by not bringing some of its foreign profits back to the United States, the group says. 
 
 Gilead declined to comment on the report. 
 
 The study strikes at a simmering battle between the Obama administration and the business community over whether U.S. corporations are inappropriately avoiding billions in taxes by taking advantage of a flawed tax code. 
 
 In 2013, Gilead launched the drug Sovaldi – a hepatitis C cure that carried an $84,000 list price for a 12-week course of treatment. That drug was followed by another treatment, Harvoni, which carried a list price of $94,500. Last month, Gilead received approval for a third treatment, Epclusa, which carries a list price of $74,760. 
 
 Last year, a Senate Finance Committee investigated the company’s pricing of hepatitis C drugs and concluded the company had sought to maximize profits at the expense of making the remedies accessible to patients. 
 
 The drugs’ prices also had a noticeable effect on overall prescription drug spending. In 2015, health care spending on prescription drugs grew more than 12 percent, according to an analysis published in the peer-reviewed medical journal Health Affairs, a rise attributed in part to the new generation of hepatitis C treatments. 
 
 The new report by Americans for Tax Fairness shows that as Gilead’s revenues and profits have grown, driven largely by its hepatitis C franchise, a perplexing incongruity has developed: In 2015, nearly two-thirds of its revenues were generated by U.S. sales, but the U.S. accounted for only 37 percent of its profits before taxes. That’s despite the fact that the U.S. generally pays more for drugs than other countries. 
 
 The report suggests that “transfer pricing” helps account for this disparity. In 2013, Gilead’s chief financial officer said the company’s tax rate would “decline over time” because its intellectual property for Sovaldi had been transferred to a subsidiary in Ireland, which has a lower corporate tax rate, 12.5 percent, than the United States. 
 
 This strategy is common, legal and increasingly used by pharmaceutical companies, said Jeremy Scott, editor-in-chief of commentary at Tax Analysts, an organization specializing in tax policy. 
 
 "People weren’t doing it as aggressively in the ‘90s as in the past five to 10 years," Scott said. “This is a recent trend." 
 
 The new report notes that Gilead's effective tax rate tumbled to 16.4 percent last year compared with 27.3 percent in 2013. (The statutory U.S. federal tax rate in the is 35 percent.) 
 
 Meanwhile, Gilead has kept a growing amount of its foreign profits overseas, reaching $28.5 billion in 2015. The company would have to pay about $9.7 billion in taxes if it brought those profits back to the United States, according to the report. 
 
 “Gilead excels at tax dodging and price gouging," Rep. Lloyd Doggett (D-Tex.) said in an e-mail. "Instead of innovation, it has spent more on stock buybacks for executives and shareholders than on research and development. Gilead’s formula for success: prices up, profits up, tax avoidance up." 
 
 Gilead is just one of dozens of large pharmaceutical and technology companies that is using a variety of tactics to potentially lower its taxes. Apple has nearly $200 billion in profits overseas, Microsoft has about $100 billion, while Gilead's competitor, Pfizer, has about $193 billion. If they were to bring those back to the United States, the companies would owe billions in taxes. 
 
 "It is quite amazing what the pharma companies can pull off, and it’s a global issue," said Steven M. Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. ||||| Bloomberg News 
 
 Oct. 13 (Bloomberg) -- The U.S. Internal Revenue Service is auditing how Google Inc. avoided federal income taxes by shifting profit into offshore subsidiaries, according to a person with knowledge of the matter. 
 
 The agency is bringing more than typical scrutiny to how the company valued software rights and other intellectual property it licensed abroad, said the person, who requested anonymity because the audit isn’t public. The IRS has requested information from Google about its offshore deals after three acquisitions, including its $1.65 billion purchase of YouTube, the person said. The transfer overseas of these kinds of rights rights has enabled Google to attribute earnings to foreign units that pay lower taxes, Bloomberg News reported a year ago. 
 
 While Google’s potential liability isn’t clear, similar deals between companies and offshore arms are often the subject of disputes over hundreds of millions of dollars in taxes, said Daniel Frisch, an economist at Horst Frisch Inc. which advises businesses on transfer pricing -- the allocation of income between units in different countries. In 2006, the IRS settled a case with drugmaker GlaxoSmithKline Plc for $3.4 billion. 
 
 “The very biggest transfer-pricing tax disputes are over transfers of intangibles to offshore subsidiaries,” said Frisch, whose firm is based in Washington. 
 
 Google, owner of the world’s most popular search engine, has cut its worldwide tax bill by about $1 billion a year using a pair of strategies called the “Double Irish” and “Dutch Sandwich,” which move profits through units in Ireland, the Netherlands and Bermuda. Google reported an effective tax rate of 18.8 percent in the second quarter, less than half the average combined U.S. and state statutory rate of 39.2 percent. 
 
 Tax Holiday 
 
 “This is a routine inquiry,” said Jim Prosser, a spokesman for Mountain View, California-based Google. He declined to comment further. 
 
 Dean Patterson, a spokesman for the IRS in Washington, said federal law prohibits the agency from discussing specific taxpayers. 
 
 U.S. companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries on which they have paid no federal income taxes, according to a May report by JPMorgan Chase & Co. Companies including Google, Cisco Systems Inc., Pfizer Inc., Apple Inc. and Microsoft Corp. are lobbying Congress for a tax holiday on bringing home those profits, which would otherwise be subject to U.S. income tax at the 35 percent corporate rate with a credit for foreign taxes already paid. 
 
 The Obama administration is opposed to that tax break and has been stepping up criticism of tax preferences for various industries and millionaires. Last week, Senate Democrats proposed a new surtax on people earning at least $1 million a year, a move that would generate an estimated $453 billion over the coming decade. 
 
 France Probe 
 
 The French tax authority also began reviewing Google’s income shifting in December, examining transactions between the company’s French and Irish subsidiaries, according to two people with knowledge of the probe. The French inquiry was prompted by the October 2010 Bloomberg article on the company’s tax-cutting strategy, the people said. 
 
 A spokesman for the French budget ministry, which oversees the tax authority, declined to comment, saying the agency cannot discuss individual cases. 
 
 Multinational companies cut their tax bills by shifting earnings into subsidiaries in offshore tax havens, a strategy that is drawing increased scrutiny from the IRS. 
 
 In May, the IRS appointed its first transfer-pricing director, Samuel Maruca. Last year, it announced the assignment of additional agents and attorneys to examine a few large companies as part of a pilot program. The IRS wouldn’t discuss whether Google is one of those companies. 
 
 Valuable Patents 
 
 Moving profit abroad is particularly important for cutting the tax bills of technology and pharmaceutical companies because of their valuable and easily transportable collection of patents and copyrights. Google, Cisco, Facebook Inc., Microsoft and Forest Laboratories Inc., maker of the blockbuster antidepressant Lexapro, have used tax-cutting strategies that move profits into units -- often with no employees or offices -- in havens such as Bermuda, the Cayman Islands and Switzerland, Bloomberg has reported. 
 
 In recent years, the IRS has engaged in a number of high profile disagreements with multinational companies over their transfer pricing. In 2006, the agency announced it was settling its dispute with GlaxoSmithKline. 
 
 In 2009, the IRS lost a closely watched U.S. Tax Court case with Veritas, now a part of computer-security software maker Symantec Corp. In that dispute, over intellectual property rights moved to an offshore subsidiary, the IRS sought $545 million. 
 
 Enforcement Setback 
 
 The win for Veritas was a major setback for the IRS’s ability to enforce transfer-pricing rules, according to H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, and director of the International Tax program at New York University School of Law. 
 
 Income shifting by multinational companies cost the U.S. $90 billion in federal tax revenue during 2008, according to a March article in the trade journal Tax Notes by Kimberly Clausing, an economics professor at Reed College in Portland, Oregon. 
 
 Google cuts its tax bill by about $1 billion a year using a technique that allocates profits to a unit managed out of a law firm in Bermuda, where there is no corporate income tax. In 2009, the most recent year for which records are available, this subsidiary collected 4.34 billion euros (about $6.1 billion) in royalties from a Google unit in the Netherlands, according to a Dutch corporate filing. 
 
 As of June 30, Google held $18.8 billion in cash in its foreign subsidiaries, almost half its total $39.1 billion in cash and marketable securities. 
 
 ‘Buy In’ 
 
 The IRS has already approved a major part of Google’s strategy. In 2006, the agency signed off on a 2003 intracompany transaction that moved foreign rights to its search technology to an Irish subsidiary managed in Bermuda called Google Ireland Holdings. That deal -- known as a “buy in” in tax parlance -- meant subsequent profit overseas based on those copyrights has been attributed to foreign subsidiaries rather than to Google in the U.S. where the technology was developed. 
 
 The IRS approval came in an accord known as an advance pricing agreement. Those arrangements are part of an agency program intended to forestall disputes with companies, including disagreements over the price paid by offshore units for patent and other intellectual property rights. 
 
 Google Acquisitions 
 
 That deal between the IRS and Google only covered rights the company held as of the 2003 licensing deal with its Irish unit. It didn’t cover copyrights subsequently acquired by the U.S. parent and then moved abroad. 
 
 Following that 2003 transaction, Google made several acquisitions, spending $1.65 billion for online-video site YouTube in 2006; $625 million for e-mail security service Postini in 2007; and $3.2 billion for web-advertising company DoubleClick Inc. in 2008. The IRS now is examining the prices paid by the foreign subsidiaries for the rights to software and other intangibles moved offshore that formerly belonged to those three companies. 
 
 According to U.S. Treasury Department rules, foreign units licensing rights from their U.S. parents are supposed to pay an “arm’s length” price, or the amount that would be paid by an unrelated company. If the offshore subsidiary pays too little, that has the effect of shifting income overseas, thus helping the parent avoid U.S. income taxes. 
 
 SEC Review 
 
 Google’s taxes have also drawn government scrutiny from the Securities and Exchange Commission. Last December, the SEC asked the company for “greater detail” about the profit it said it had earned in countries with lower tax rates and the impact on its effective tax rate, according to correspondence released by the agency in March. The SEC said in a February letter that it had completed its review of Google’s filings. It is unclear what action, if any, the agency took. 
 
 In August, Google announced it was spending $12.5 billion to acquire Motorola Mobility Holdings Inc., the Libertyville, Illinois telecom-equipment and mobile-phone maker. Google said it was doing the deal primarily for Motorola’s collection of valuable patents. Prosser didn’t respond to a question about whether Google would be moving any of those patent rights offshore. 
 
 --With assistance from Mark Deen in Paris. Editors: Jonathan Kaufman, Lisa Wolfson 
 
 To contact the reporter on this story: Jesse Drucker in New York at jdrucker4@bloomberg.net 
 
 To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net ||||| In an announcement on Monday morning, Pfizer, the big drug company, whose headquarters are on East 42nd Street, in Manhattan, said that it is merging with one of its competitors, Allergan PLC. Ian Read, a Scottish-born accountant who is Pfizer’s chairman and chief executive, said that the proposed deal, which is valued at a hundred and sixty billion dollars, would “create a leading global pharmaceutical company with the strength to research, discover and deliver more medicines and therapies to more people around the world.” 
 
 On Wall Street and in the world of big pharma, that statement will raise chuckles. It is widely acknowledged that the primary impetus for the deal is a financial one. In merging with Allergan, which is based in Dublin, Pfizer intends to move its corporate residency to Ireland, where the corporate tax rate is just 12.5 per cent, compared to thirty-five per cent for a company of its size in the United States. Over the next few years, the merger could save Pfizer billions of dollars in taxes and deprive the U.S. Treasury of the same amount. 
 
 Tax-driven deals of this nature are known as “inversions,” and they are becoming increasingly common. Burger King, Liberty Global, and Medtronic are among the U.S. corporations to have carried out mergers that moved their headquarters abroad. Last year, Treasury Secretary Jacob Lew said that inversions were “wrong,” and that he would try and restrict them. Only last week, the Treasury Department issued some new administrative guidelines in this area. Without actual legislation, though, there isn’t very much the Obama Administration can do to prevent these exercises in corporate tax-dodging, and Republicans on Capitol Hill have displayed little eagerness to coöperate in a crackdown. 
 
 The Pfizer–Allergan deal will be the biggest inversion yet, and it is nothing short of a disgrace. Drug companies like Pfizer have long benefitted from taxpayer-funded research carried out under the auspices of organizations like the National Institutes of Health and the National Science Foundation. Now, Pfizer is seeking to avoid paying the taxes that are due on its profits, particularly profits generated by its overseas subsidiaries. Even though the Obama Administration doesn’t have the legal powers to block the Allergan transaction, it should seek to shame Pfizer and its board of directors into calling it off. 
 
 Founded in 1849, in Williamsburg, Brooklyn, by two German cousins, Charles Pfizer and Charles Erhart, Pfizer has a long history of researching and developing new drugs and chemicals. Its first commercial product was an anti-parasitic pill designed to fight intestinal worms, which were a common affliction at the time. In the late nineteenth century, it became a leading manufacturer of citric acid, ascorbic acid, and vitamin pills. During the Second World War, it developed a new way of making penicillin, which was then seen as a miracle drug. After the war, the company established itself as a global leader in antibiotics and other areas of medicine. During the nineteen-seventies and eighties, it invested heavily in R. & D., boosting its research budget to about twenty per cent of its sales. These investments produced a number of blockbuster drugs, including Procardia (angina and hypertension), Glucotrol (diabetes), Feldene (inflammation), Zoloft (depression), and Viagra (erectile dysfunction). In 1999, when Pfizer celebrated its hundred and fiftieth anniversary, it was widely seen as the leading drug company in the world. 
 
 Pfizer continues to employ thousands of dedicated scientists and to invest heavily in medical research. Since 2010, though, when Read took over as chief executive, it has cut its R. & D. budget significantly and raised its spending on stock buybacks. Under Read’s leadership, cost-cutting and financial engineering have sometimes seemed to be driving the company’s strategy. To some extent, these kinds of changes were unavoidable. As the pace of discovery for blockbuster new drugs has slowed in recent decades, all of the big pharmaceutical companies have come under pressure to trim their research budgets and pursue more effective ways of developing products, such as teaming up with innovative startups. 
 
 So, like many other big American corporations, Pfizer is facing challenges adapting to a changed world. But nothing in its financials or its strategic position suggests that it is facing the sort of threat that might justify the radical and potentially self-destructive move that giving up its U.S. domicile entails. A venerable member of the Fortune 500 now looks for all the world like a greedy tax exile, skipping off to a dodgy foreign locale. (Viewed in terms of its corporate tax policies and the assist it provides to big multinationals seeking to avoid paying taxes in their homelands, Ireland is distinctly dodgy.) 
 
 Read, in his statement explaining the proposal to merge with Allergan, said that it would help put Pfizer “on a more competitive footing within our industry.” This was a reference to the fact that other big pharma companies, such as AstraZeneca, GlaxoSmithKline, and Novartis, are headquartered in countries with lower corporate tax rates than the United States. However, there is scant evidence that being based in the United States has handicapped Pfizer or made it more difficult for the company to raise capital. 
 
 To the contrary, being based in the United States enables Pfizer to exploit the vast reservoirs of technical expertise that reside here, and to access federal support for scientific research. For example, according to the company’s Web site, it has dozens of collaborative projects with the National Institutes for Health. And being headquartered in the United States certainly hasn’t prevented Pfizer from making a lot of money. Over the past two years, the company has generated almost nineteen billion dollars in net profits. 
 
 All things considered, it’s hard to avoid seeing the merger proposal as a cynical move designed to boost Pfizer’s stock price and generate a windfall for the company’s senior managers, who are compensated mainly in equity. If the Obama Administration can’t block the deal, the best hope may be to put some public pressure on Pfizer’s non-executive directors, whose approval is necessary for the merger to go through. Its lead independent director is Dennis Ausiello, an eminent physician who, for many years, was chief of medicine at Massachusetts General Hospital. Other non-executives on the Pfizer board include Frances Fergusson, a former president of Vassar College; Helen Hobbs, a professor of medicine at the University of Texas Southwestern Medical Center; W. Don Cornwell, a former chief executive of Granite Broadcasting; and James Kilts, a founding partner at the private equity firm Centerview Capital. These directors are all experienced, worldly individuals. Last year, according to Pfizer’s 2015 proxy statement, they were each paid more than three hundred thousand dollars to carry out their duties, which include overseeing the company’s full-time management and protecting the long-term interests of all of its stakeholders: employees, shareholders, and customers. 
 
 One of those key interests, surely, is safeguarding Pfizer’s reputation, which has already suffered in recent years, following a big marketing scandal over the since-discontinued painkiller Bextra and other missteps. Read has for years been telling shareholders in his annual letter to them that “earning greater respect from society” is one of Pfizer’s strategic imperatives. One of the ways the company could do this, he said, was through “acting as a respectable corporate citizen.” So here is a question for the independent directors: Do you really think that traducing Pfizer’s proud history by moving to Dublin and shafting American taxpayers would be the act of a “respectable corporate citizen”?
– A pharmaceutical company that has in recent years made billions of dollars on hepatitis C treatments—the three the FDA has approved range from $75,000 to $94,500—has been named a "price gouger" and "tax dodger" in a new report. Gilead Sciences, the sixth richest drugmaker in the world, "is making a fortune selling essential drugs to the very government and taxpayers that helped pay to develop them, and then dodging taxes on the resulting profits," says Frank Clemente, executive director of Americans for Tax Fairness, which issued the report this month. Gilead has avoided some $10 billion in taxes by moving assets to Ireland, where there is a lower tax rate, and then not bringing some $28.5 billion in profits back into the US. Per the Washington Post, the California-based company's revenues in 2015 hit $32.6 billion, up three times from 2012. As for the accusation of gouging: Last year, a Senate investigation found that the company "pursued [a] profit-driven strategy" with its hepatitis drugs, rather than making the drugs more accessible at a lower price (it had considered $50,000). As the Post notes, Gilead, which declined to comment on the report, isn't alone in looking overseas for tax relief. Plenty of other pharmaceutical and technology companies do it. Apple, for instance, has squirreled away nearly $200 billion abroad, Bloomberg reported last year. According to Citizens for Tax Justice, that's enabled the company to avoid paying $59.2 billion in US taxes. Pfizer has some $193 billion abroad, per the Post. The new report singling out Gilead, the Post points out, highlights the "simmering battle" between President Obama and big business over the practice of sending assets to foreign countries.