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AstraZeneca Pays $1 Billion in US Tax Dispute

AstraZeneca has agreed to pay more than $1 billion to settle an ongoing dispute over its US tax liabilities.

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The Anglo-Swedish drugmaker said on Monday it would pay a net $1.1 billion to resolve disagreements surrounding transfer pricing and related valuation issues for the period from 2000 to the end of 2010.

The case involves the complex system of transfer pricing, an inter-company tax accounting process that allows the transfer of intangible property — such as patents, trademarks and licenses — to subsidiaries, which are often in offshore, lower-tax countries.

In February 2010, AstraZeneca agreed to pay £505 million to settle a dispute with the UK tax authorities over transfer pricing.

The transfer pricing market is thought to be worth more than $15 billion annually but has become contentious as more countries introduce regulations and cash-strapped governments intensify efforts to ensure they receive an adequate share of revenues.

“AstraZeneca had provided in its accounts for the outcome of these issues, at the heart of which are complex transfer pricing considerations that have taken many years to resolve,” the group said.

AstraZeneca added that it had concurrently reached a separate long-term agreement on tax payments to the UK and US regarding the group’s US business for the 13-year period from 2002 to the end of 2014.

The $1.1 billion pay-out is less than the group had set aside to settle the dispute, allowing about $500 million to be released to boost first-quarter earnings per share.

The group increased its 2011 earnings-per-share target from $6.45-$6.75 to $6.90-$7.20, reflecting the guidance upgrade.

AstraZeneca also said its effective tax rate for 2011 was expected to be about “6 percentage points lower than the previous guidance of 27 percent, at about 21 percent”.

The news boosted AstraZeneca shares, which rose 37p, or 1.25 percent, to £29.10 in early London trading on Monday.

“The release of a provision is not the highest quality source of earnings. Be that as it may, the settlement with US tax authorities regarding transfer pricing between 2002 and 2010 removes a significant overhang and tidies up another liability,” said Savvas Neophytou, an analyst at Panmure Gordon.

AstraZeneca is facing a steep fall in sales in the coming years as patents expire on some of its most successful drugs and it struggles to find replacements.

In 2010, the group said it would cut 8,000 staff over the next four years as part of a $2 billion (£1.2 billion) restructuring to counter falling sales.

The company has stood out from many of its peers by resisting diversification into consumer healthcare, animal health and other niches less risky than patented drugs.

Two months ago AstraZeneca lowered its earnings guidanceon long-term sales generated by its experimental medicines.

At the time the drugmaker pledged to double its share buy-back to $4 billion this year and increase its dividend, in spite of a 4 percent year-on-year drop in annual sales to $8.6 billion in the year to December 31.