American drug companies are complaining to Trump that they pay get less than they would like from Australia’s drug purchasing and approval arrangements. Meantime they pay almost no tax on the profits they do make in Australia according to a report in today’s Financial Review.
Five foreign companies; Johnson & Johnson, Pfizer, AstraZeneca, Novo Nordisk and Eli Lilly, had revenue of $4,750 million but paid tax of only $99.7 million, just 2%.
We don’t have enough information to know exactly but we know these companies exploit things like payments for licensing Intellectual Property. These are payments to head office or more likely an Irish subsidiary.
Intellectual Property gives its owner a monopoly profit but these companies are effectively able to nominate which jurisdiction is to tax that monopoly profit. They arrange things so that licensing fees go to low tax jurisdictions. This is multinational tax avoidance 101.
Some years ago we put a proposal to the Senate that effectively said monopoly profit should be allocated among jurisdictions according to sales. Either that or the tax office just ignores such payments between 100% owned subsidiaries. See Corporate tax avoidance: Submission. Those changes would massively boost tax paid by these and other high-tech industries in Australia.
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