Canada accuses GSK, Roche of tax dodging

Canada's Customs and Revenues Agency has accused multinationaldrugmakers of vastly overpaying affiliated companies abroad for pharmaceutical raw ingredients, in order to claim less taxable profit in Canada. The agency is alleging tax dodging totaling over C$160 million ($105.1 million) in three cases brought against GlaxoSmithKline and Roche.

The overpayments are alleged to have been made by: Glaxo Wellcome for ranitidine, with tax revenues at stake of C$50 million; Roche for naproxen, norethindrone, fluocinolone and fluocinonide, with relevant tax revenues of C$40 million; and SmithKline Beecham for cimetidine, involving alleged unpaid tax revenues of C$67 million. The latter is the oldest case under investigation, dating back to the early 1980s, while the other two go back a decade. The biggest disallowance of deductions being sought concerns the purchase in 1993 by Syntex (since acquired by Roche) of the anti-inflammatory fluocinolone from its Panamian parent company for C$401 per gram while, says the agency, generic versions were available for $10.54 per gram.

The Toronto Globe and Mail reports that the firms are defending themselves against the charges by stating that cheap generics are not acceptable substitutes, and that long-term agreements, the value of brand-name ingredients and R&D costs must be taken into account. The report also says it is unusual for the companies to decide to turn to the courts, given that such agency investigations and court cases can go on for years.