A Detroit-based pension fund filed a proposed class action lawsuit against Amgen, as well as Amgen CEO Robert Bradway and Chief Financial Officer Peter Griffith, alleging that the company artificially inflated its stock price by concealing a dispute over its international tax strategy between July 29, 2020, and April 27, 2022. The complaint, filed on behalf of anyone who purchased Amgen shares during that time frame, alleges that Amgen took too long to tell investors it may owe the United States Internal Revenue Service (IRS) $10.7 billion in taxes and penalties.
The complaint stems from an IRS accusation that from 2010 to 2015, Amgen underreported taxes by nearly $24 billion, mainly by attributing what should have been United States taxable income to a Puerto Rico unit that houses its main manufacturing business and produces many of its drugs. Puerto Rico is considered a foreign country for corporate tax purposes.
The complaint alleges that Amgen’s stock share price fell by 6.5% on August 4, 2021, and 4.3% on April 28, 2022, because the company waited until those dates to share the potential tax liability.
Amgen is reviewing the complaint and has previously said that the IRS allegations are without merit and overstated by billions of dollars, saying that the company’s tax setup is a result of the “contributions made, the risks taken, and the significant equity value of our Puerto Rico subsidiary.” The IRS is also auditing Amgen’s taxes in 2016, 2017, and 2018 for similar issues.
Amgen said that the IRS agreed with the company’s apportionment of profit between the company’s United States and Puerto Rico operations, with a spokeswoman saying, “Our tax returns have always been compliant with the law and reflect our position that the appropriate allocation has not changed—our allocation of profit recognizes the key contributions made, the risks taken, and the significant equity value of our Puerto Rico subsidiary.”
The Wall Street Journal noted that this Amgen and IRS disagreement is “the latest example of heightened government scrutiny of the international tax practices of pharmaceutical, technology and other companies.”
Not Just the IRS
Amgen is also one of the companies that the Senate Finance Committee is examining for their tax practices. In 2022, Amgen’s effective tax rate was 10.8%, lower than the large United States drug company average. Over the last four years, its average effective tax rate has been about 12%: 12.1% in 2018, 14.2% in 2019, 10.7% in 2020, and 12.1% in 2021. Senator Ron Wyden notes that those rates as “substantially lower than the statutory U.S. corporate tax rate of 21 percent.”
The Wall Street Journal noted that Amgen’s median effective tax rate has been 12.5% over the past decade, compared to an 18% median rate across the 10 largest United States drug companies.