September 22, 2019

Apple’s Web of Tax Shelters Saved It Billions, Panel Finds

The investigation is expected to set up a potentially explosive confrontation between a bipartisan group of lawmakers and Timothy D. Cook, Apple’s chief executive, at a public hearing on Tuesday.

Congressional investigators found that some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” said Senator Carl Levin, a Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations that is holding the public hearing Tuesday into Apple’s use of tax havens. “Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.”

Thanks to what lawmakers called “gimmicks” and “schemes,” Apple was able to largely sidestep taxes on tens of billions of dollars it earned outside the United States in recent years. Last year, international operations accounted for 61 percent of Apple’s total revenue.

Investigators have not accused Apple of breaking any laws and the company is hardly the only American multinational to face scrutiny for using complex corporate structures and tax havens to sidestep taxes. In recent months, revelations from European authorities about the tax avoidance strategies used by Google, Starbucks and Amazon have all stirred public anger and spurred several European governments, as well as the Organization for Economic Cooperation and Development, a Paris-based research organization for the world’s richest countries, to discuss measures to close the loopholes.

Still, the findings about Apple were remarkable both for the enormous amount of money involved and the audaciousness of the company’s assertion that its subsidiaries are beyond the reach of any taxing authority.

“There is a technical term economists like to use for behavior like this,” said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles and a former staff director at the Congressional Joint Committee on Taxation. “Unbelievable chutzpah.”

While Apple’s strategy is unusual in its scope and effectiveness, it underscores how riddled with loopholes the American corporate tax code has become, critics say. At the same time, it shows how difficult it will be for Washington to overhaul the tax system.

Over all, Apple’s tax avoidance efforts shifted at least $74 billion from the reach of the Internal Revenue Service between 2009 and 2012, the investigators said. That cash remains offshore, but Apple, which paid more than $6 billion in taxes in the United States last year on its American operations, could still have to pay federal taxes on it if the company were to return the money to its coffers in the United States.

John McCain of Arizona, who is the panel’s senior Republican, said: “Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders.”

In prepared testimony expected to be delivered to the Senate committee by Mr. Cook and other Apple executives on Tuesday, the company said it “welcomes an objective examination of the U.S. corporate tax system, which has not kept pace with the advent of the digital age and the rapidly changing global economy.”

The executives plan to tell the lawmakers that Apple does not use tax gimmicks, according to the prepared testimony.

Nelson D. Schwartz reported from Washington and Charles Duhigg from New York. David Kocieniewski contributed reporting from New York.

Article source: http://www.nytimes.com/2013/05/21/business/apple-avoided-billions-in-taxes-congressional-panel-says.html?partner=rss&emc=rss

European Officials Say Drug Makers Paid to Delay Generic Version

The case focuses on monthly payments that a Netherlands-based subsidiary of the American company Johnson Johnson made to Sandoz, a unit of the Swiss company Novartis. While the companies have said the payments were legitimate, the European Union’s antitrust chief said Thursday that the money probably changed hands to keep lower-cost versions of a drug called fentanyl off the market in the Netherlands.

European authorities are “determined to fight undue delays in the market entry of generic medicines,” Joaquín Almunia, the E.U. competition commissioner, said in a statement Thursday.

His office would not disclose the amount of money the Johnson Johnson unit in the Netherlands, Janssen-Cilag, paid to Sandoz. Nor would officials indicate whether the investigation would go beyond the Netherlands.

Fentanyl is widely used in Europe and the United States, typically paid for by government-provided health plans or, in many cases in the United States, by private insurance. Although the pricing of such drugs is usually negotiated behind closed doors, generic versions are typically much cheaper.

Mr. Almunia warned pharmaceutical companies against practices that raised costs for European governments, squeezed by austerity and an economic slowdown, which must buy medicines for state supported health care plans. It is “important to make sure that pharmaceutical companies do not free-ride our welfare state and health insurance systems, especially in this period of constraints on public spending,” he said.

A goal of European authorities has been to increase patient access to less costly medicines as name-brand drug patents worth tens of billions of euros expire. The end of a drug’s patent protection — typically up to 25 years in Europe — can hurt a pharmaceutical company’s bottom line, but benefits governments and private insurers by lowering their costs.

Patent expirations also open opportunities for generic competitors, which is why in some cases drug makers have been accused of paying generic competitors to delay bringing their products to market.

A preliminary investigation by Mr. Almunia’s office found that Janssen-Cilag made the payments to stop Novartis from selling generic fentanyl in the Netherlands for more than a year, from July 2005 until December 2006. That kept prices artificially high, according to the European Commission, the Union’s administrative body that enforces antitrust law.

Both companies will have the chance to formally respond to the accusation.

The commission, which first announced the inquiry in October 2011, can fine companies up to 10 percent of their annual global sales for antitrust abuses. Penalties are typically lower, though, because officials usually base fines on sales of the main product involved in the case, and then increase the amount based on the duration of the offense and other factors.

Fentanyl is a painkiller that is stronger than morphine, according to the commission. In skin-patch form, which is the type at issue in the investigation, the drug is used to relieve moderate to severe pain that lasts for a long time, does not go away and cannot be treated with other medications, according to the Web site of the U.S. National Library of Medicine. In lozenge form, fentanyl is used to treat sudden episodes of pain, known as breakthrough pain, in cancer patients who are already taking other painkillers, according to the Web site of Cephalon, a company owned by Teva of Israel, which markets the drug under the Actiq brand.

A spokesman for the Johnson Johnson subsidiary said in a statement that the company had not acted improperly. “Janssen continues to believe that these arrangements were legitimate,” the spokesman, Stefan Gijssels, said Thursday. “Janssen supports a sustainable health care system, where patients have access to both innovative and generic drugs,” he said.

Sandoz said in a statement that it and “Novartis operate to the highest of standards and take the position of the commission seriously.” It also indicated that it and Novartis would seek to rebut the accusations made by the commission by using their “rights of defense as provided for in the process.”

The case is the latest in a series of actions by authorities in Europe and the United States to crack down on so-called pay-to-delay tactics by pharmaceutical companies, and comes at a time when the biggest name-brand drug makers are losing billions of dollars in sales to generic competition as best-selling drugs lose their patent protection.

In the United States, the Supreme Court is scheduled in March to take up the issue of whether such deals in the pharmaceutical sector violate antitrust law.

Article source: http://www.nytimes.com/2013/02/01/business/global/eu-says-drug-makers-paid-to-delay-generic-version.html?partner=rss&emc=rss