Merck Pressed on Overseas Profits in Senate Tax Inquiry
(Bloomberg) -- Merck & Co.'s finances came under Washington scrutiny as Senator Ron Wyden pressed the drugmaker on how it booked profits overseas last year while its effective tax rate dropped.
Merck paid an effective tax rate of 11% in 2021 and reported just 14% of its pretax income in the U.S., even though the country accounts for almost half the company's sales, according to a letter Wyden sent to Merck Chief Executive Officer Rob Davis.
“It appears that the company has minimized profits in the United States while reporting substantial foreign profits to avoid paying U.S. corporate income taxes,” Wyden, an Oregon Democrat who chairs the Senate Finance Committee, said in the letter.
Lawmakers are putting greater attention on how global companies use overseas subsidiaries to limit the U.S. taxes they owe. The letter is part of a broader investigation by Wyden's committee, which sent a similar letter to AbbVie Inc. in March.
A spokesman for Merck said the company had received the letter and would cooperate with the request.
Merck, maker of the blockbuster cancer therapy Keytruda and the Covid-19 treatment molnupiravir, reported almost $49 billion in sales in 2021. Income from continuing operations before taxes was about $13.9 billion, of which $12 billion was reported as foreign income, according to a company filing. Merck's effective tax rate was 23% in 2020, before dropping to 11% last year, the filing shows.
Wyden's letter cited Merck's support for the Tax Cuts and Jobs Act of 2017, noting that the company lobbied for it, and its CEO at the time met with former President Donald Trump to discuss tax policy. The law permits global companies based in the U.S. “to structure their operations in a way that allows them to pay a tax rate that is a fraction of that paid by hard-working American families,” Wyden wrote.
The four-page letter seeks detailed information on Merck's tax practices, overseas operations, and entities that hold key intellectual property about the medications. Wyden requested a response by April 15.
©2022 Bloomberg L.P.
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