GlaxoSmithKline settles $3.1bn tax dispute

GlaxoSmithKline (GSK), the UK’s largest pharmaceutical company, has agreed to pay the US Internal Revenue Service (IRS) a total of $3.1 billion (1.6 billion pounds) after settling a tax dispute.

The company was to stand trial early in 2007 regarding tax payments made between 1989 and 2000 and although GSK said it was “confident of its position”, the uncertainty of litigation and the potential for the incursion of large costs meant it was in the best interests of its shareholders to settle.

Despite the large size of the settlement, GSK stated that it had made provisions for such a scenario, adding that the payout would not have any “significant” impact on the company’s earnings or tax rate.

The dispute – the biggest in tax history – originally stemmed from the distribution of taxes from Zantac sales between GSK’s US subsidiary and its UK parent company.

Analysts and experts have welcomed the decision to settle, saying that it removes doubt over the prospects of future litigation, while a GSK spokesperson said the company was “very pleased” by the settlement.

Navid Malik, an investment broker for Collins Stewart, told Reuters: “This effectively clears an overhang that people were worried about and means investors can focus on the fundamentals at Glaxo.”

If GSK had lost the dispute in court, it could have been charged with a $15 billion tax bill.