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GlaxoSmithKline IRS Dispute Continues

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As part of its dispute with the IRS,GlaxoSmithKline has received a claim for additional taxes that the US government asserts legacy company, Glaxo Wellcome owes for the years 1997-2000.

GSK disagrees with this tax claim, and the company believes that it has paid all the taxes owed to the U.S. Government for these years.

This Notice of Deficiency for $1.9 billion (1.0 billion pounds sterling) in tax, principally relates to the allocation of taxes on profits for Glaxo heritage products between the US and other countries. To the extent that the IRS is successful in this claim, interest would be payable. GSK estimates the interest to date would be approximately $700 million (380 million pounds), net of federal tax relief.

On January 7, 2004, GSK previously announced that the company had received a Notice of Deficiency for $2.7 billion in tax for the years 1989-1996, and estimated the interest charge for this claim would be approximately $2.5 billion net of federal tax relief. In making the announcement GSK said that it expected to receive a similar notice for the 1997-2000 period,

The company continues to believe, based on external professional advice, that it has made adequate provision for tax liabilities which could arise from these tax assessments. GSK also continues to believe that the profits reported by its US subsidiaries for the period 1989-2000, on which it has paid taxes in the United States, are more than sufficient to reflect the activities of its US operations.

There continues to be a wide difference of views between GSK and the IRS. GSK considers that the additional tax claim by the IRS on Glaxo heritage products is inconsistent with the treatment of other pharmaceutical companies, including GSK legacy company SmithKline Beecham. GSK plans to contest this claim for additional taxes.

Disagreements with and between revenue authorities as to tax allocations between related companies in different tax jurisdictions are inevitable for a global business such as GSK. The company attempted to resolve the dispute by referring it to negotiations between the US and UK tax authorities. The company believes these discussions collapsed when the UK supported the GSK position that no additional taxes were due to the IRS.

The Company will ask the US Tax Court to consolidate the 1997-2000 claim with the case currently pending before the court for the 1989-1996 tax years. A provisional date for the trial has been set for October 2006.

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GlaxoSmithKline IRS Dispute Continues
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