Drug companies embroiled in tax row

  • 2007-08-22
  • By Kimberly Kweder

LAX TAX: The Lithuanian government is concerned that it is not getting its full share frompharmaceutical sales; estimates are that the state is losing as much as 29 million euros per year.

VILNIUS- International pharmaceuticalcompanies operating inLithuania have becomeinvolved in a dispute with theState Tax Inspectorate after thelatter accused them of tax evasionand demanded they pay up.The controversy stems from anaudit of the activities, since 2005,of several pharmaceutical companiesoperating in the country. Theaudit concluded that someLithuanian branches of internationalpharmaceutical dealers,whose activities are purportedlylimited to marketing, were in factengaged in trading activities, andtherefore should be taxed on productssold.

"According to the findings ofthe STI audit, activity of someundertakings in Lithuania is notlimited to marketing functionsalone, i.e. the collected data showsthat in fact, trading activity is alsoin place," Mr. Darius Alinskas,Deputy Head of State TaxInspectorate, told The BalticTimes."During the tax audit, evadedtaxes shall be estimated and sanctionsanticipated in tax laws shallbe applied, i.e. surcharges for latepayment and respective fines.Although, we would like to underlinethat the key objective of theLithuanian Tax Administration isto stop tax evasion and future utilizationof operational modelsdesigned for the purpose of taxevasion," he said.While the STI is not allowed tocomment on which specific companiesit says were involved, themarketing branches of Eli Lilly,Pfizer and AstraZeneca have comeforward to say that they wouldfight the STI's demands that theypay.

"We know we can defend ourcase. They [tax authorities] havethe wrong address. We are goodcorporate citizens and will continuethis way," said Pfizer'sLuxembourg General ManagerRaimundas Voihska.Voishka said that the STI wasattempting to tax the companies'Lithuanian branch based on salesinvoiced by their parent companyin Belgium.Eli Lilly, Pfizer andAstraZeneca branches say theyare exempt from the sales taxbecause they're not involved inthe sales, only in marketing theproducts."It's totally nonsense," he said."Which law have we broken?""They [tax authorities and thegovernment] want to show powerand repatriate money. Theybelieve at this rate, they canreduce prices in the pharmaceuticalmarket," he added.General Director forLithuania's AstraZeneca branchSaulius Sabunas also disagreeswith the tax authorities' assessmentof the situation."We don't sell medicines, wesell ideas," as he was quoted onLRT's Web site.

Lithuanian media has estimatedthe overall amount of taxes the statecould be losing each year from taxevasion by the pharmaceuticalindustry at 100 million litas (29 millioneuros).Alinskas, however, puts the figureat about half that."Following calculations, we canmake a conclusion that branches offoreign pharmaceutical undertakings's while concealing their factualtrading activity 's could have evadedup to 50 million of tax per year," hesaid.