GSK “Dodged Millions” in China Drug Tax Scam

Reuters reports that Chinese authorities have accused British multinational pharmaceutical company GlaxoSmithKline of evading more than $16.04 million in taxes. The allegation comes after Mark Reilly, the former head of Glaxo’s China operations, was charged last Wednesday with ordering subordinates to commit bribery.

A Chinese state-run newspaper has accused British drugmaker GlaxoSmithKline Plc of evading at least 100 million yuan ($16.04 million) in taxes, adding to pressure on the firm which is already struggling with graft charges against executives.

[...] The Legal Daily newspaper, run by the ruling Chinese Communist Party’s Political and Legal Committee, reported on Friday that GSK intentionally imported Lamivudine, used to treat HIV as well as hepatitis, at an elevated cost.

Along with using tax loopholes for charitable donations, this helped GSK “avoid over 100 million yuan in import value-added tax and corporate income tax,” the report said.

The report followed less-detailed allegations by state news agency Xinhua saying GSK used transfer pricing to artificially reduce its profits and tax bill in China.

[...] The Legal Daily report also said that GSK had avoided import taxes by donating some of the imported drug to support state-backed treatment of the disease, adding GSK could have donated cheaper drugs that it produced at a plant in Suzhou instead. [Source]

A Wall Street Journal op-ed argues that pressing selective bribery charges against Western multinationals will not address rampant corruption in China’s courts and public sectors.

This perception of politicized and selective prosecution is as bad for business as a genuine corruption crackdown would be good for it. Compounding the problem, Beijing is not aggressively pursuing the Chinese officials who participate in endemic corruption, despite efforts to tamp down on more overt displays of ill-gotten wealth. The few high-profile cases to emerge, such as last year’s trial of Chongqing Communist Party boss Bo Xilai, have centered on rivals to President Xi Jinping.

Meanwhile, authorities act against journalists and activists who expose corruption. In a case last year, a blogger known as “Boss Hua” was detained after pointing out that a local official had been photographed wearing an expensive watch. Earlier this year lawyer Xu Zhiyong was sentenced to four years in jail for “disturbing public order” by demanding officials publicly disclose their wealth.

[...] As for ordinary Chinese, they may cheer the prosecution of allegedly corrupt Western companies. But they also know the truth about their own leaders and their politicized courts. The longer Beijing pursues big graft cases against foreigners without rooting out corruption closer to the Communist Party’s heart, the more cynical and disillusioned they will become about their government. [Source]