Merck resolves tax disputes with IRS for $2.3bn

Merck & Co. announced Wednesday that it has entered into a definitive agreement to settle its previously-disclosed three tax disputes with the Internal Revenue Service (IRS), and agreed to pay about $2.3 billion for the settlement.

The Whitehouse Station, New Jersey-based Merck said that it has resolved all of the issues that were in dispute with IRS, covering the years 1993- 2006, by agreeing to a $2.3 billion settlement.

However, another $1.76 billion dispute with Canadian tax authorities is not involved in the agreement and remains unresolved. The drugmaker has filed an appeal with the Canada Revenue Agency that is expected to be reviewed this year.

Merck had disclosed both tax cases in November in a routine Securities and Exchange Commission filing and said that it faced potential tax liabilities totaling $5.58 billion from U.S. and Canadian authorities related to a number of disputes over accounting for past transactions.

The company had faced potential taxes, interest and penalties totaling as much as $3.8 billion from IRS, but now it expected to pay approximately $2.3 billion which covers federal tax, net interest after federal tax deductions and penalties.

Both Merck and the IRS declined to discuss the reduction in amount.

The pharmaceutical giant said it has already reserved funds for covering the payment, and does not expect the settlement to have a material impact on its 2007 earnings.

According to Merck, in order to eliminate the uncertainty and cost of potential litigation, the IRS settlement was in the company's best interests.

Merck's November SEC filings refer only to a 1993 partnership transaction in discussing its then-potential liabilities to the IRS. The Merck settlement also relates to that partnership deal. The Wall Street Journal in September published a report depicting how Merck, in partnership with a British bank, set up a subsidiary with an address in tax-friendly Bermuda.

Established in 1891, the global research-driven pharmaceutical company discovers, develops, manufactures and markets vaccines and medicines to address unmet medical needs.

Another pharmaceutical company, GlaxoSmithKline PLC, a British based biologicals, healthcare and research-based firm, agreed in September to pay the IRS $3.4 billion in what was the largest tax settlement ever.

Merck shares rose 11 cents to $44.06 in Wednesday trading on the New York Stock Exchange, near their 52-week high of $46.55.