The IRS is pursuing Bristol Myers Squibb for allegedly using an abusive offshore tax shelter to avoid paying nearly $1.4 billion in U.S. taxes. The agency claims that Bristol Myers, which is headquartered in New York, moved intellectual property to offshore subsidiaries in violation of U.S. profit-shifting rules. The existence of the inquiry only became available after the IRS published a document detailing the arrangement that inadvertently contained ineffective redactions.
In 2012, Bristol Myers implemented a tax strategy whereby the company moved patents and other intellectual property to Irish subsidiaries. The arrangement sharply reduced Bristol Myers’ U.S. tax liabilities: during the three years before Bristol Myers implemented the arrangement, the pharmaceutical company’s tax rate was close to 24%. After the company moved patents to the Irish subsidiary, however, Bristol Myers paid an effective negative 7% tax rate in the United States. The company’s offshore tax scheme was described as particularly aggressive because the IRS recently challenged similar schemes attempted by General Electric, Merck, and Dow Chemical.
Public knowledge of the IRS’ inquiry into Bristol Myers’ tax arrangement came about by chance. The IRS routinely drafts reports detailing complex audits and publishes redacted versions online with anonymized taxpayer information. Bristol Myers’ report, however, contained superficial redactions that could be removed. The disclosure of the Bristol Myers’ tax shelter comes as the Biden Administration has put the spotlight on multinational companies shifting profits abroad. President Biden’s tax plan proposes increasing the corporate income tax rate, increasing tax revenues derived from a U.S. corporation’s foreign profits, and establishing a global minimum corporate tax rate to prevent companies from diverting profits to foreign tax havens.