The Internal Revenue Service announced a record settlement for a long-running a transfer pricing dispute with pharmaceutical giant Glaxo SmithKline Holdings Inc. and the company's subsidiaries.
This case, which is pending in the U.S. Tax Court, is the largest tax dispute in the history of the agency. Under the agreement, GSK will pay the IRS approximately $3.4 billion (including interest), while the government will abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, as part of a deal to resolve the parties' long-running transfer pricing dispute for the tax years between 1989 through 2005.
Transfer pricing is an accounting method requiring that related parties engage in transactions at arm's length to ensure the proper reporting of taxable income. The case dates back to the 1980s and involves adjustments to GSK's tax years from 1989 through 2000. The sides have also reached agreement for the tax years between 2001 through 2005 for related issues.
The case involves inter-company transactions between GSK and its foreign affiliates relating to the U.S. profits of pharmaceutical products and payments made by the U.S. branch for products and trademarks developed by the company's U.K.-based parent company.
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