The company reported pre-tax profits of almost $810 million. It paid $22.3 million in corporate tax, the equivalent of a 2.75% tax rate. Forest Laboratories Holdings, an Irish-incorporated subsidiary of the New York listed company, sub-licenses the rights to manufacture drugs to other Forest subsidiaries.
Forest Laboratories acknowledges using Ireland to reduce its tax bill. In its annual report, filed with the SEC, the firm said its overall tax rate for the year was 20%, compared with the US rate of 35%.
‘‘A portion of our earnings is taxed at more favorable rates applicable to the activities undertaken by our subsidiaries based or incorporated in the Republic of Ireland,” said the report. However, the company admits its transfer pricing ‘‘is the subject of an ongoing audit by the Internal Revenue Service’’ in the US.
‘‘Changes in tax laws or in their application or interpretation, such as to the transfer pricing between Forest’s non-US operations and the US, could increase our effective tax rate and negatively affect our results of operations,” it warned.
In connection with the audit, the report confirms that the IRS has issued a revenue agent report which seeks to assess approximately $206.7 million of additional corporation income tax with respect to the company’s 2002 and 2003 fiscal years, excluding interest and penalties.
“We continue to disagree with the IRS position and have filed a formal written protest of the proposed adjustment. If the IRS prevails in a position that increases the US tax liability in excess of established reserves, it is likely that the IRS could make similar claims for years subsequent to fiscal 2003 which could be material.”
