AbbVie, an American biopharmaceutical company with a current market value of more than $260 billion, has sharply reduced its federal tax bill in recent years thanks to a provision in the 2017 Republican tax bill signed into law by former President Donald Trump, according to a new report from the Senate Finance Committee.
The tax law has allowed AbbVie to shift most of its U.S. sales to tax havens around the world, shielding income from U.S. taxation. “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,” the report says. “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.”
Sen. Ron Wyden (D-OR), who chairs the panel, said in a statement that the report highlights the need for Congress “to fix this broken system, so nurses and firefighters aren’t paying higher tax rates than Big Pharma.”
Playing the system: The 2017 GOP tax law established a minimum corporate tax of 10.5% on income recorded by multinationals based on patents and trademarks held offshore. This provision was intended to prevent multinationals from moving income and profits to low-tax jurisdictions, but some companies quickly figured out how to use the new system to their advantage.
AbbVie’s blockbuster rheumatoid arthritis drug Humira – the best-selling prescription drug in the world for several years, with a current annual cost of more than $77,000 per patient – provides a telling example. In a review of the Senate report, The Washington Post’s Tony Romm says that AbbVie “based its patents, trademarks and other assets for the sale of Humira with subsidiaries in Bermuda, while manufacturing key parts of the drug via a branch in Puerto Rico … These and other tactics helped AbbVie sharply reduce the taxes it owed, lowering its effective U.S. rate in 2018 to about 8.7 percent from 19 percent a year earlier, the data show. For 2021, AbbVie expected to pay an estimated effective tax rate of about 12.5 percent.”
In a letter to the Senate committee last fall, an AbbVie official made it clear that the Republican tax overhaul has helped the company lower its tax bill. “The changes made by the 2017 tax law altered U.S. taxation on foreign earnings for U.S. corporations and have had a significant impact on AbbVie’s effective tax rate,” said Scott Reents, AbbVie’s Vice President for Tax and Treasury.
What comes next: The Biden administration hopes to enact an international agreement that establishes a minimum global tax rate and closes loopholes that allow multinationals to park profits in tax havens. But Republicans have opposed making changes to the 2017 tax law and are not expected to support any new international agreements, likely leaving the current system in place for the foreseeable future.