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Senate Finance Committee Issues Report on Puerto Rico Pharma Company’s Tax Tricks

The Senate Finance Committee has issued a report claiming that pharmaceutical company AbbVie is deceitfully sheltering income through Puerto Rico. The Report is titled, “Interim Report: Big Pharma Tax Avoidance” with the subtitle, “Senate Finance Committee Investigation Reveals Extent to Which Pharma Giant AbbVie Exploits Offshore Subsidiaries to Avoid Paying Taxes on U.S. Drug Sales”.

The report begins with an overview:

Provisions in the 2017 Republican tax law allow AbbVie to generate most of its sales in the U.S., while reporting virtually no income in the U.S. for tax purposes. In 2020, over 75% of AbbVie’s sales were made to American consumers yet only 1% of AbbVie’s income was reported in the United States for tax purposes. AbbVie’s ability to exploit subsidiaries in offshore tax havens to avoid paying billions of dollars in taxes on U.S. prescription drug sales signals a clear need to reform the international tax code.

Under the Republican tax law, AbbVie has continuously paid an effective tax rate that is less than half the U.S. corporate tax rate of 21% and the marginal tax rate of 22% paid by an American family with a combined income of $84,000. A multinational pharmaceutical corporation with annual sales of over $50 billion in annual sales paid a lower tax rate than a postal service worker or a preschool teacher. It is unacceptable that this Republican led giveaway has only created more loopholes for big pharma to shift profits offshore.

AbbVie held the intellectual property for its product in Bermuda and accomplished some production in Puerto Rico. “Though legally domiciled in Bermuda, AbbVie Biotechnology Ltd. operates through a branch in Puerto Rico that manufactures the Humira bulk drug substance and a fill-finish operation in which the bulk drug substance is filled into syringes or injectable pens,” says the report. “These pre-filled syringes are then sold by the Puerto Rico branch to AbbVie Inc. in the U.S., which then packages and sells Humira to third party customers in the United States.”

There are no employees in Bermuda, and about 1,200 in Puerto Rico. There are 45,719 employees in the company’s Chicago officeOver the past four years, AbbVie has sold $62 billion worth of this drug in the United States. The company relies on transfer payments to make its profits fall under Puerto Rico’s tax system, while providing relatively few jobs on the Island.

These numbers suggest that each Puerto Rican worker produces more than $51.6 million in revenue.

Effects on Puerto Rico

The company’s website emphasizes its commitment to the communities it serves in Puerto Rico, saying, “We are a strongly committed community partner and concerned corporate citizen, with a year round corporate responsibility program that encompasses the voluntarism of our employees and the corporate support to give back to the communities where we live, work and operate. The Company’s philanthropic priorities are geared towards education, and to support non-profit organizations that address unmet needs and provide services to the underserved. The Company is one of United Ways top contributors through an annual employee giving campaign with company matching.”

The Senate report does not imply that AbbVie has done anything illegal in this tax sheltering behavior. Rather, the report argues against the use of the tax laws to reduce corporate tax payments far below the tax rates paid by American families. “It is unacceptable that a U.S. company that profits off of record-breaking prescription drug sales to U.S. consumers is able to avoid paying billions in taxes,” the report states.

With 1,200 workers, AbbVie is a large employer in Puerto Rico. By comparison, Walmart (another major corporation headquartered in a state) has 23,200 workers in Puerto Rico, and Deloitte has 103,900. AbbVie is proud of the way they support the communities where they have manufacturing facilities. Yet the profits they claim to earn from their facilities in Puerto Rico are out of line with the actual benefit to the Island. Smaller employers who kept more of their earnings in the local economy actually have more value to Puerto Rico’s residents.

The Senate is concerned about the loss of tax revenue rather than the effects of this kind of dodge on Puerto Rico’s economy, but those effects are part of the reason Puerto Rico is in a dire financial position.

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