Pfizer, GlaxosmithKline leaning on the taxpayer

GlaxoSmithKline has notched up $6.6 billion in sales over the past five years in Australia – and received $1.2 billion in taxpayer subsidies under the PBS – but recorded profits to the ATO of just $154 million. Photo: Jessica Shapiro

They may get humungous subsidies from Australian taxpayers, they may fork out a mere skerrick of tax in Australia themselves, but don’t you worry, Big Pharma and the corporate tax lobby will tell you they are lifters, not leaners.

Look at Astra-Zeneca, Johnson & Johnson or Merck Sharp & Dohme, they will cry; they all paid close to the 30 per cent corporate tax rate in Australia last year.

Sorry, but 30 per cent of what? It is this ‘what’ which counts. This ‘what’ is taxable profit. The whole multinational tax avoidance caper relies on eliminating profits by funnelling them off to tax havens. The aim is to declare as little profit as possible in Australia.

If you don’t make a profit, you can’t be taxed. Looking at the Budget Office figures for GlaxoSmithKline which looks like one of the worst offenders; it cost the taxpayer $308 million under the PBS last year. It recorded sales of $952 million for the year, declared a profit of just $22 million and paid a measly $1.5 million in tax.

Here is a company which has notched up $6.6 billion in sales over the past five years in Australia – and received $1.2 billion in taxpayer subsidies under the PBS – but had the gall during this time to produce profits of just $154 million.

You can bet your bottom dollar GSK’s profit margins are way higher in London and the US.

A recent Fairfax Media investigation of Pfizer Australia found Pfizer’s US parent was four times more profitable than Pfizer Australia (cost of sales as a percentage of revenues four times higher here than there).

This is one of the big ruses – cost of sales – charging as much in costs to Australia while ripping out as much profit as possible in intellectual property payments and assorted tax schemes.

You will hear the corporate tax lobby protesting that multinationals obey the laws and often pay close to Australia’s 30 per cent tax rate.

Look how well Singapore is doing, they will say, where the corporate tax rate maxes out at 17 per cent. Australia has to cut its corporate tax rate to be competitive, they claim. This is all sophistry.

Yes, it would be a fine thing to cut the corporate tax rate in Australia. But that won’t make much difference to the likes of Big Pharma. The tax havens where their profits are destined have rates closer to zero than 17 per cent. Try competing with that.

Profits should be properly recorded in Australia, where they are made, and the first step in enforcing this is simple: enforce decent transparency and disclosure. Make all multinationals report “general purpose” rather than “special purpose” financial statements – as they ought to already – and a good deal of the more murky transactions will come to light and a good deal more will never happen.

For this disease, sunlight is definitely the best disinfectant.