Recent developments in the pharmaceutical industry have highlighted concerns over tax practices that are prompting calls for the United States to adopt more stringent transparency rules akin to those of the European Union. At the center of this discussion is Merck & Co., a major player in the industry, which has recently faced a request from a group of faith-based and pension fund investors. This group demands that Merck disclose detailed country-by-country (CbCR) financial data pertaining to its tax practices.
Merck reported approximately $20 billion in profits from $65 billion in global sales in the previous year. However, the company’s domestic tax scenario resembles that of a struggling entity, as it posted a $1.8 billion tax loss in the US for 2024. This anomaly has sparked debate over implications of profit shifting. While Merck faces scrutiny, the issue is not isolated. The Internal Revenue Service aims to reclaim $10.7 billion from Amgen Inc. over alleged profit shifting, a situation that has already led to stock dips and a class-action lawsuit from investors.
Merck’s tax strategies have prompted questions from lawmakers and independent experts. The company’s SEC filings indicate tax savings resulting from operations in low-tax jurisdictions like Ireland and Singapore, reducing its tax liability significantly. Ireland, for instance, manufactures about half of Merck’s top 20 products, including its blockbuster cancer treatment drug, Keytruda. Despite these figures, Merck reports substantial domestic losses, raising issues similar to those identified in a Senate Finance Committee investigation into the exploitation of foreign subsidiaries by pharmaceutical companies to avoid US taxes.
Advocates, including economist Brad Setser and tax expert George Callas, have pointed out that the 2017 Tax Cuts and Jobs Act reforms did not sufficiently curb profit-shifting tactics prevalent in the sector.
Internationally, countries like Australia have embraced more rigorous transparency rules obligating multinationals to disclose their tax data. The EU has enacted similar measures, albeit with limitations. Critics argue that multinational companies’ apprehensions regarding compliance costs are exaggerated, given that they already produce confidential reports.
In light of these developments, experts suggest that the US should not be an outlier in tax transparency. By adopting public CbCR, the U.S. can provide investors with crucial insights into corporate tax practices and align itself with global trends in corporate accountability.