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Last Updated: Monday, 11 September 2006, 22:06 GMT 23:06 UK
Glaxo pays record $3bn in tax row
Medicine bottles, spoon and pills
Glaxo's finances should be able to comfortably absorb the payout
Drugs giant GlaxoSmithKline has agreed to pay a record $3.1bn (1.7bn) to end a tax row with the US government.

The deal covers a dispute with the US Internal Revenue Service (IRS), which had been due to go to trial in 2007.

The case centred on "transfer pricing" - the way drugs were priced through its US subsidiary and how much tax should be paid on profits from its US unit.

Glaxo said it had set aside enough money to cover the settlement, and the deal should not push up drug prices.

It also said the deal would have little effect on its reported earnings.

Court date cancelled

As part of the settlement, the UK-based drugs group also abandoned its claim for a $1.8bn tax rebate.

GSK concluded that it was in the best interests of its shareholders to reach this settlement

Glaxo had been due to take the matter to court, as the IRS had rejected the rebate claim and said the group owed $8.3bn in back-taxes covering the years 1989-2000. That case had been due to come to court in February next year.

The IRS will also end its case pursuing the pharmaceuticals group for taxes for the years 2001-2005.

"GSK was confident of the strength of its position, but in view of the size of the potential financial exposure ... GSK concluded that it was in the best interests of its shareholders to reach this settlement, thereby removing the costs and uncertainty of future litigation," the company said in a statement.

A spokeswoman for the firm added that it could have faced a potential bill of between $14bn and $15bn for its taxes up to 2005 if the IRS had won in court.

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