Merck prevented billions in U.S. tax by offshoring Keytruda income – senator

July 27 (Reuters) – Drugmaker Merck & Co (MRK.N) avoided billions of dollars of U.S. taxes in recent years on its top-selling cancer drug Keytruda by booking all the profits from the treatment outside of the United States, according to an ongoing investigation by Democrats on the Senate Finance Committee.

The committee’s chairman Senator Ron Wyden of Oregon sent a letter to Merck Chief Executive Robert Davis on Wednesday criticizing the drugmaker for refusing to provide all the information the committee has requested. Wyden’s office provided a copy of the letter to Reuters.

Democrats on the committee have been investigating how the tax law passed by Republicans in 2017 has benefited large U.S. pharmaceutical companies such as Merck and AbbVie and whether those companies have been exploiting foreign subsidiaries to avoid taxes.

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Wyden said in the letter that Merck was able to avoid U.S. taxes on Keytruda – even on sales in the United States – by holding patents in the Netherlands and manufacturing the drug in Ireland.

“Prior to today, we have received two letters from the Senate Finance Committee requesting responses to questions around our tax rate, and in each case, we have cooperated and responded with information that we believe appropriately addressed their inquiries,” Merck said in an emailed statement.

AbbVie did not immediately respond to a request for comment.

Cancer immunotherapy Keytruda is one of the world’s top-selling drugs. Merck sold around $17.2 billion of it in 2021, with around $9.8 billion of those sales in the United States.

Merck’s effective tax rate last year was 11%, Wyden said in his letter, just over half the current U.S. corporate tax rate of 21%.

Wyden said the $22.4 billion of sales it reported in the United States accounted for 46% of Merck’s sales in 2021. Still, the company only reported $1.85 billion in pretax income in the United States for the year – less than 15% of its total pretax income.

Earlier this month, an interim report from the committee said that shifting profits overseas by AbbVie Inc resulted in “stunningly low effective tax rates.” read more

In 2018, Reuters laid out how AbbVie reported its income in lower tax jurisdictions, which was possible in part because the company parked the majority of the patents for its top-selling drug, the rheumatoid arthritis treatment Humira, in tax haven Bermuda.

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Reporting by Michael Erman Editing by Caroline Humer and Mark Potter

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