Bitter pill that comes with having large drugs sector

Yet, despite the importance to them of sales funded by government revenues, pharmaceutical companies, as with almost all multinationals, organise their affairs so they direct profits to low-tax jurisdictions.

White’s company, Abbott, is in the process of creating a sister group, Abbvie, which will focus on research-based pharmaceuticals. This year two Irish Abbvie subsidiaries were established, with registered addresses at the offices of Matheson solicitors in Dublin. Also established was Abbvie Ireland NL BV, a Dutch company with an address in Sligo.

The structure looks like one designed to reduce Abbvie’s future tax bills in much the same way that Google, Microsoft, and other multinationals have used Ireland to save themselves fortunes in global corporation tax. A request for a comment from Abbvie on this point yesterday met with no response.

Just this week Bloomberg reported that Google avoided $2 billion in corporation tax in 2011 by way of its international tax structure. That tax structure is centred in Dublin, where two of Google’s key companies are based at the Matheson offices, and use a Dutch company as part of their tax avoidance policies (the so-called Dutch sandwich scheme).

Earlier this year a report for the Senate Permanent Subcommittee on Investigations in Washington disclosed that Microsoft reduced its US corporation tax bill by €1.87 billion in 2011. The saving was achieved mostly through the avoidance of tax on royalty payments between three companies with their registered addresses at the Matheson offices. One of them, Round Island One, is a Bermuda company, despite having its registered office here.

The structure channels non-US profits from around the globe (including Africa) to Bermuda, which does not charge corporation tax.

Revenues lost

About 60 per cent of world trade occurs within multinational companies. An enormous amount of the profit from that trade is ending up in low-tax and offshore jurisdictions. The revenues lost to governments as a result has to be replaced by targeting other sources, including individuals and businesses that do not trade internationally.

In an environment where so many western countries are raising extra taxes and cutting services in an effort to narrow government deficits, the aggressive avoidance measures operated by multinationals are becoming a political issue.

This month the head of the UK’s public accounts committee, Margaret Hodge, described the tax policies of Google, Amazon and Starbucks as “outrageous and an insult to British businesses and individuals who pay their fair share”. Starbucks, stung by reputational damage, offered to voluntarily pay £20 million to the British exchequer.

On the other hand, Google executive chairman Eric Schmidt responded by saying he was “proud” of his company’s tax structures.

Calls for reform of how multinationals are taxed are entering mainstream debate. The issue featured at last month’s meeting of G20 finance ministers in Mexico.

But Ireland, because of its dependence on foreign direct investment, finds itself on the side of the status quo. Likewise, in relation to financial services, the Irish Financial Services Centre complicates Irish policy on banking regulation and the implementation of a financial transaction tax.

A number of the letters sent to Enda Kenny by the pharmaceutical companies quoted his stated ambition to “make Ireland the best small country in the world in which to do business in 2016”.

That ambition is all very well, but having a disposition towards siding with multinational companies as they play countries off one another carries with it the probability of ongoing erosion of the scope to make political decisions.

It is not true that everything comes with a price. But a lot does.