Amgen Faces Class Action Lawsuit for Concealing $10.7 Billion Tax Bill to Manipulate Stock Price

Amgen Inc., a pharmaceutical giant which reported total revenues of $26.3 billion in 2022, recently faced a class action lawsuit filed by a Michigan-based pension fund, accusing the company of mishandling its tax information, thereby allowing its shares to be traded at artificially high levels.

Amgen’s CEO Robert Bradway and CFO Peter Griffith were also sued in the class action filed in Manhattan federal court. According to the filing, the California-based pharma was accused of concealing an outstanding $10.7 billion bill of taxes and penalties owed to the Internal Revenue Service (IRS) from investors and delaying reporting the claimed back taxes. This effectively makes “false and misleading statements”, ultimately causing investor losses of hundreds of millions of dollars. 

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Amgen’s International Tax Strategy and its Dispute with the IRS

In 2017, the IRS notified Amgen that it owed $3.6 billion in taxes for the years 2010 to 2012. The company received a similar notice in 2020 regarding $5.1 billion of back taxes from 2013 to 2015. Also, the IRS is seeking interest together with a proposed $2 billion penalty because of the company’s strategies for avoiding taxes.

There was primarily an issue surrounding Amgen’s strategies of distributing its profits between its facilities in the U.S. and Puerto Rico, an unincorporated territory of the U.S. considered a foreign country, in order to avoid paying federal income taxes. On the one hand, Amgen claims that it performs much of its commercial manufacturing activities in Puerto Rico. On the other hand, the IRS insists that Amgen improperly shifted nearly $24 billion in profits. These profits were supposed to be taxed in the U.S., to its Puerto Rico subsidiary.

In fact, Amgen has long enjoyed one of the lowest tax rates in the pharmaceutical industry, reporting a median 12.5% effective tax rate over the past decade, compared with an 18% median rate among the top 10 pharmaceutical companies across the country.

Amgen Allegedly Misreport its Tax Issues

According to the complaint, Amgen failed to disclose its 2017 $3.6 billion tax bill in an earnings release in August 2021, even though the Securities and Exchange Commission stipulates that Amgen must disclose the IRS’s tax dispute. Additionally, Amgen is alleged to have waited until the release of its April 2022 earnings report before disclosing its $5.1 billion tax bill and $2 billion penalty.

For Amgen, the tax dispute with the IRS and its recent entanglement in the class action lawsuit will inevitably put pressure on its stock price. If the IRS prevails, the company could see a significant increase in its future tax rate. Besides, if Amgen loses this lawsuit, the company will probably have to compensate its shareholders with a substantial amount of money.

Author

Richard Chau