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Glaxo battles IRS over big tax burden

BRITISH-BASED drug company GlaxoSmithKline is battling the United States Internal Revenue Service over a potential US$1.9 billion in back taxes, interest and penalties.

Glaxo had already detailed the dispute in its annual report in March, but the case was highlighted by The Wall Street Journal, which said the IRS was investigating a tax-savings technique employed by the company known as "earnings stripping."

The practice usually involves reducing taxable profits in the US by claiming excessive interest deductions on intercompany loans from units abroad.

Glaxo, the world's second-largest drug maker, said in the annual report that in this case the dispute arose over its "reclassification of an inter-company financing arrangement ... from debt to equity and its consequent recharacterization of the amounts paid as dividends subject to withholding tax."


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