By Renae Merle
The Washington Post
Years before it attracted nationwide criticism for drastically hiking the price of the EpiPen, pharmaceutical giant Mylan faced a quandary.
The company had merged with another in 2014 that allowed it to move its headquarters from Pennsylvania to the Netherlands through a so-called inversion that would significantly lower its tax rate. But as part of the deal, Mylan’s executives would be hit with a hefty tax bill for company stock they had received as part of their compensation packages.
To avoid the tax headaches for its top executives, Mylan accelerated $32.5 million in executive compensation for its leadership team and then reimbursed them for $20.5 million in taxes, according to Securities and Exchange Commission filings.
The company’s chief executive, Heather Bresch, and chairman, Robert Coury, both received about $10 million ahead of schedule. The company covered $5.3 million in taxes for Bresch and $3.8 million for Coury, according to the company’s SEC filings.
The maneuver would “maintain proper incentives” so the executives would remain with the company, Mylan said at the time. Not covering the tax bill would “deprive them of a substantial portion of the value of the equity-based awards that they hold, when they were critically important to Mylan’s past success and in negotiating this transformative opportunity for Mylan.”
The strategy was just one of many steps Mylan has taken in recent years as it has pushed its tax rate to new lows. Since moving its headquarters to the Netherlands, its overall tax rate has fallen from 16 percent in 2014 to 7 percent last year, according to the SEC filing. The company has also been able to push down how much it pays in U.S. taxes, tax experts say.
“There is no doubt, that they are aggressively managing their tax situations,” said Robert Willens, an independent tax expert. Their U.S. tax rate “is close to zero, a very, very low rate,” said Willens.
Mylan’s tax strategies have come under renewed scrutiny since it raised the price of the lifesaving allergy injection EpiPen 2-Pak from about $94 in 2007 to $609 this year. That has brought public recriminations from lawmakers, who complain the company is price gouging. Mylan has struggled to contain the controversy. Last week, it said it would create a drug coupon program to save consumers money and on Monday it said it would introduce a generic version of injection.
In 2014, Mylan acquired parts of Abbott Laboratories’ generic-drugs business for more than $5 billion. That allowed it to move its headquarters to the Netherlands where the corporate tax rate is 20 percent, compared with the statutory rate of 35 percent in the United States.
The company has defended the move as strategic, noting it would prevent Mylan from being purchased by a foreign company. “What’s patriotic is making this country a place that allows you to thrive, grow your industry versus handcuffing you and making you a sitting target” to be acquired, Bresch, the company’s chief executive, said to Bloomberg in November 2014.
The company was started in 1961 by two Army buddies in West Virginia, who sold products to “doctors and pharmacists from an old Pontiac Bonneville,” according to the company’s website. It is now one of the world’s largest generic drug companieswith thousands of employees around the globe. Over the last few years, it has found ways to push down its effective tax rate, including through research tax credits, according to the company’s SEC filings.
“We continue to look at additional tax planning strategies for opportunities to further reduce our annual effective tax rate in 2016 and beyond,” John Sheehan, Mylan’s executive vice president, said in a conference call with analysts in February.
Lawmakers have long been frustrated by corporate tax avoidance maneuvers and passed legislation in 2004 to make it a more costly choice for corporate executives. Executives at companies that move their headquarters overseas through an inversion now face a 15 percent excise tax on the stock or stock options they have been awarded as part of their compensation packages.
Picking up the executives’ tax bills is a “common strategy” for companies that move their headquarters overseas, said Willens. “It is a clear benefit to the executives at the cost of shareholders, but it is pretty common,” he said. “It is done by almost every company that was faced with that decision.”
Mylan is just the latest company to face criticism for its tax strategies. The Obama administration has taken repeated steps to make inversions less profitable, including establishing rules that were credited with dashing Pfizer’s deal to merge with Botox maker Allergen and move its headquarters to Ireland. (The U.S. Chamber of Commerce is now suing to block those proposed rules.) In Europe, several U.S. multinational companies are under investigation for dodging taxes. The European Commission ruled Tuesday that Apple owes $14.5 billion in back taxes.
But corporate executives argue they are following the law and paying the taxes that they owe. Unlike many other countries, the U.S. taxes a company’s profits even when they are made overseas. Several business groups, including the U.S.Chamber, have argued Congress should reform the U.S. tax code to make it more competitive with other countries.
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