Pharmaceutical giant GlaxoSmithKline (GSK) has agreed to pay a record $3.1 billion (£1.7 billion) to settle a long-term dispute with tax authorities in the United States.
The settlement, the largest in the history of the US Internal Revenue Service (IRS), ends a dispute between the US government and British-based firm GSK over transfer pricing – the price set for goods and services transferred between parts of the same company in different companies.
The dispute over how much tax GSK's US subsidiary should pay to the IRS dated back to 1989 and covered profits made on various products made by the company, including its gastro-intestinal drug Zantac.
The case had been due to go to court in February next year, but GSK announced yesterday that it had agreed to settle the dispute in order to end uncertainty over future litigation.
In a statement, the company said: "GSK was confident of the strength of its position, but in view of the size of the potential financial exposure, as well as the continued level of resource being applied to the case, 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."
Europe's largest drugs manufacturer said that it had previously made provision to end the tax dispute and stressed that its settlement with the IRS would "not have any significant impact on the company's reported earnings or tax rate".
As part of the settlement, GSK was forced to abandon its claim for a $1.8bn (£9.6 million) tax rebate from the IRS.
GSK stocks responded positively to news of the settlement yesterday, with the company's share price rising ten pence to £14.79.