AstraZeneca Pays $1.1 Billion for Tax Settlement

AstraZeneca, a global drug company with its headquarter in London, has reached an agreement with U.S. and U.K. tax regulators to pay $1.1 billion for tax issues that have been going on in the last decade.

AstraZeneca will pay the settlement in 2011 to resolve all transfer pricing issues in the United States. The payment is much less than what was determined in provisions. In fact, this good news raised AstraZeneca's 2011 core earnings to be $6.90 to $7.20 a share. This payment will cause AstraZeneca's effective tax rate this year will be some six percentage points lower than thought at about 21 percent." (FYI, the statutory corporate tax rate is 35%.)

According to this New York Times article, 

Transfer pricing concerns the price at which one unit of a group sells goods or services to another unit of the same group. Such practices are receiving increased attention as tax authorities around the world seek to limit any abuse of intracompany transfers of expenses or profits.

This is another interesting article about big corporates with tax issues. As an accounting major, I find transfer pricing to be a very subjective practice where GAAP recognizes the importance of different transfer pricing methods due to different industry standards. I find it amusing when U.S. government goes after corporates for tax issues because SEC's current accounting rules have too many loopholes that it seems silly if people don't take advantage of them. 

G.E. Claims $3.2 Billion In Tax Benefits Instead of Paying Taxes

General Electric should give their accountants salary raises. And big, fat bonuses.

At year-end 2010, G.E. reported $14.2 billion in annual worldwide profits ($5.1 billion domestic profit), the company paid nothing to Uncle Sam. On top of that, G.E. claimed $3.2 billion in tax benefits. The New York Times had an interesting evaluation of the situation:

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

For those that are interested in the detailed accounting works performed by G.E., depreciation and leasing are two major areas where most tax benefits were achieved.

Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.