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Irish Media Confirms ATF Claims About Gilead Science’s Massive Profit Shifting

An August 21 news story in FORA, an Irish business publication, confirmed key findings in a recent Americans for Tax Fairness (ATF) report, which alleged Gilead Sciences is shifting most of the U.S. profits it is generating from its exorbitantly priced hepatitis-C medication to Ireland to dodge U.S. taxes.

Gilead’s annual report to the U.S. Securities and Exchange Commission (SEC) allowed ATF to determine that the company paid just a 1% tax rate on its offshore profits in 2015. Gilead had $28.5 billion in untaxed profits offshore at the end of 2015. It reported to the SEC that it would owe $9.7 billion in U.S. taxes on them if they were repatriated to America.

The Irish investigation made an even more surprising finding about Gilead’s profit-shifting: the billions in worldwide profits that Gilead is booking in its Irish subsidiaries are so-called “tax-resident” in the Bahamas, a tax haven with no tax on corporate income. Gilead is achieving this through the use of a so-called “Double Irish” tax loophole. That means Gilead is not even paying taxes to Ireland on these primarily U.S. profits.

The Irish reporter found that the profits Gilead was recording in two key Irish subsidiaries tracked the profits ATF alleged the company had stashed in Ireland from 2009 to 2012. This was based on Gilead’s annual reports to the SEC showing its “permanently reinvested earnings” during those years. After 2012 Gilead’s Irish subsidiaries no longer filed records “because both companies were changed to an ‘unlimited’ status, which means they are not required to publicly file their accounts,” according to FORA’s investigation.

It was from 2013 to 2015 that Gilead’s pretax profits skyrocketed (rising from $4.2 billion to $21.7 billion, a five-fold increase) as did its offshore profits (rising from $8.6 billion to $28.5 billion, more than a three-fold increase). This massive increase in profits was due to sales of Gilead’s two exorbitantly priced hepatitis-C drugs, Sovaldi and Harvoni, whose retail costs were $84,000 and $95,000 respectively.  

“This Irish investigation confirms what we have suspected, that Gilead is engaged in a massive shell game, shifting its billions of U.S. profits offshore to dodge U.S. taxes,” said Frank Clemente, executive director of Americans for Tax Fairness. “Gilead’s behavior is reprehensible. It is price-gouging consumers who need this life-saving drug. It is selling billions of dollars a year of its overpriced drugs to public health programs after taxpayers helped pay to develop them. And it is dodging billions in taxes it owes the American people.”   

Detailed excerpts from the FORA article are below:

“The Irish connection …

However, Gilead also has another Irish subsidiary, Gilead Biopharmaceutics Ireland, through which a huge amount of money was moved.

Gilead Biopharma was set up at the end of 1999 and did not engage in any substantial trading for years, with no significant assets as of May 2004.

But after the group was reorganised in 2004, the company began to trade, reporting revenues of almost $640 million with 532 employees on its books. By 2006, although the company had no listed employees, it had sales of $634 million and made a $395 million profit.

A note in the directors’ report said that the company’s sales “are derived from royalties and licences granted to other group companies to use the company’s intellectual property”.

It also said that Gilead Biopharma “is a non-resident Irish incorporated entity which holds certain intellectual property rights to use, develop, exploit and enjoy pharmaceutical technology”.

Double Irish

The company’s setup appears to be similar to those used by many other multinationals as part of a so-called ‘double Irish’ structure.

Under Irish law, authorities only recognise a firm as ‘tax resident’ in Ireland – and therefore under obligation to pay tax to the Irish state – if its main centre of business is in Ireland.

Companies can declare their main centre of business offshore and – perfectly legally – avoid paying any corporate tax in Ireland. …

Gilead Ireland profits

Gilead Biopharma continued to record large profits after 2006 and had accumulated profits of $6.9 billion by the end of 2012, even after it paid out a $195 million dividend.

However, the company paid no Irish tax on the profits as it was tax resident in the Bahamas. A note attached to its own accounts clarified that “no taxes are levied on corporate income or gains from the Bahamas”.

Gilead also transferred ownership of Pharmasset, which developed the hep-C drugs, to an Irish subsidiary after paying just under $11 billion for the firm.

“Pursuant to a contribution agreement the company contributed its interest in Pharmasset to Gilead Ireland Research. The value of these shares at the date of the contribution was $10.7 billion,” its accounts said.

However, 2011 records for Gilead Ireland Research do not say whether the company took ownership of any assets, such as the IP for Sovaldi.

In 2013 the Wall Street Journal quoted Gilead chief financial officer Robin Washington, speaking on an earnings call, as saying that the intellectual property (IP) for the company’s hepatitis-C compound “is domiciled in Ireland”.

Under this setup – with the IP for one of its most valuable drugs in Ireland – Gilead’s other subsidiaries would have to pay an Irish company for the rights to produce the drug.

Any resulting sales would only incur taxes via the Irish company, rather than though the US parent at that country’s tax rate of 35%.

Irish companies go unlimited

However, both Gilead Ireland Research and Gilead Biopharma stopped filing records after 2012. This is because both companies were changed to an ‘unlimited’ status, which means they are not required to publicly file their accounts.

Nevertheless, the accounts seem to support the claim that Gilead was storing much of its offshore profits in Ireland – at least until 2012.

According to Gilead’s US filings, the company had about $7.25 billion in ‘unremitted foreign earnings’ at the end of 2012, marginally more than the accumulated profits held by Gilead Biopharma Ireland. headquarters in California

Unremitted foreign earnings often refers to money held abroad by US companies. The money is held overseas, meaning that it is not taxed in the US unless the company attempts to ‘repatriate’ the funds to its home country.

Until the end of 2012, the company’s unremitted foreign earnings increased roughly in line with the accumulated profits of Gilead Biopharma Ireland.

It had $3.2 billion, $4.5 billion, $5.9 billion in unremitted foreign earnings as of the end of 2009, 2010 and 2011 respectively. Gilead Biopharma Ireland had accumulated profits of $3.1 billion at the end of 2009, $4.4 billion in 2010 and $5.8 billion in 2011.

As of the end of 2015 Gilead’s total unremitted foreign earnings had shot up to $28.5 billion. However, as Gilead Biopharma, the Irish offshoot, went unlimited in 2012, it is unknown how much, if any, of the group’s profits were retained in the Republic.

Gilead declined to comment on the activities of its Irish companies when contacted by Fora.”

For ATF’s full report on Gilead Sciences, click here.

FORA is a publication of thejournal.ie that covers startups and small- and medium-sized enterprises.

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Americans for Tax Fairness is a diverse coalition of 425 national and state endorsing organizations that collectively represent tens of millions of members. The organization was formed on the belief that the country needs comprehensive, progressive tax reform that results in greater revenue to meet our growing needs. ATF is playing a central role in Washington and in the states on federal tax-reform issues.