GlaxoSmithKline (GSK) And IRS Battle Regarding Back Due Taxes

The IRS is battling in court with GlaxoSmithKline PLC (NYSE: GSK) because it says GSK owes $1.9 billion in back taxes, interest and penalties stemming from tax deductions Glaxo generated essentially by making payments to itself, according to the WSJ>

The dispute revolves on a practice known as earnings stripping, in which a multinational company reduces its taxes by claiming interest deductions for payments to a related unit overseas. GlaxoSmithKline claims deductions on its U.S. tax return, but no money ultimately leaves the parent company and publicly reported profit is unchanged.

This comes at a bad time for GlaxoSmithKline because the Obama administration is currently targeting corporate tax cutting and international loopholes.

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The tax-savings methods used by Glaxo is popular among foreign companies that have large U.S. operations and often is legal, but recently have come under increased scrutiny.

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