Gilead Sciences has been the subject of lawsuits, political rebuke and public ire for the last few years as health advocates have called out the drug maker for price gouging after it purchased a smaller pharmaceutical firm and hiked the price of Sovaldi, a cure for Hepatitis C.
Now, a new report by Americans for Tax Fairness finds that not only is the company charging U.S. consumers an exorbitant amount for a critical, life-changing drug, it is shifting the profits it earns in the United States to offshore tax havens and avoiding taxes on a massive scale.
Of the report’s many findings, a few stand out. Between 2013 and 2015, Gilead’s profits more than quintupled from $4.2 billion to $21.7 billion. The explosion in profits can be attributed to Gilead’s 2011 acquisition of Pharmasset and its drug Sovaldi, a cure for hepatitis C (HCV). Gilead shifted the patent for this medicine to Ireland to avoid paying taxes on profits generated from that drug. In fact, Gilead’s untaxed offshore earnings rose by $12.9 billion, from $15.6 to $28.5 billion, between 2014 and 2015, the fourth largest offshore profit shift among Fortune 500 companies. Gilead Sciences reports that it has paid a tax rate of one percent on these billions in profits, a clear indication the company is using the magic of accounting to claim these profits are in low or zero-tax countries.
If Sovaldi had been developed by Gilead exclusively or in Ireland, perhaps there would be an argument for the company’s low tax rate on billions in profits. But what makes this case exceedingly egregious is that U.S. taxpayer dollars subsidized the research that helped create Sovaldi in the first place. Pharmasset’s founder, Raymond Schinazi, was an almost full-time worker at the Department of Veterans Affairs (VA) for almost three decades. During that time, he and Pharmasset received nearly $11 million in grants for research on viruses, including HCV, from the National Institutes of Health. Making matters worse, the HCV drug that Americans can end up paying $1,125 per pill for goes for one percent of that price in other countries. The price is so high that government agencies and programs, such as the VA and Medicaid, have been forced to ration the limited quantities they have and only treat a tiny portion of the total number of people they could help.
In addition to receiving major government subsidies for research activity, Gilead lowered its tax bill by $2 billion over the last decade by taking advantage of a loophole that allows stock options offered to corporate executives to be tax-deductible. If Gilead used the money it saved on taxes to significantly increase investment in research and development on new drugs, its tax dodging would seem far less egregious; however, the company spent nearly 20 percent more on stock buybacks than research and development between 2005 and 2014, greatly inflating the value of the company and the former CEO’s paycheck by almost 600 percent.
To be clear, Gilead Sciences is just one of many price gougers and tax dodgers of the corporate world. Multi-national pharmaceutical companies are some of the most egregious corporate price gougers and tax dodgers in the world, charging exorbitant rates for lifesaving drugs and circumventing countries’ tax codes all in the name of profits and their shareholders’ financial wellbeing.
More broadly, a recent CTJ analysis found that Fortune 500 companies are avoiding $695 billion in U.S. federal income taxes on the more than $2.4 trillion in profits they are holding offshore. As long as Congress refuses to act, it is complicit in this large-scale tax dodging. Neither Gilead Sciences nor any other major company should be allowed to avoid paying their fair share in taxes, particularly when those large profits are made possible by U.S. taxpayer investment in the first place.
The nation’s lawmakers should act immediately to shut down this tax avoidance behavior by ending deferral, making corporate inversions harder, increasing corporate transparency and closing egregious tax loopholes like the stock option loophole.
Aaron Mendelson, a CTJ intern, contributed to this report.