Tax

Merck Swallows $2.3B Tax Pill

Concludes an IRS examination for 1993 through 2001, but a separate disagreement with Canadian tax authorities remains unresolved.
Stephen TaubFebruary 14, 2007

Merck announced that it will pay $2.3 billion to settle a tax dispute with the Internal Revenue Service.

The settlement — which covers federal tax, net interest after deductions, and penalties — concludes an IRS examination for 1993 through 2001, the company added.

Merck stressed that for the previously disclosed disputes, the tax impact for years after 2001 is covered by the settlement, but those years remain open in all other respects.

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A separate disagreement with Canadian tax authorities remains unresolved, observed The Wall Street Journal.

According to the IRS, three significant issues had concerned Merck’s use of minority-equity-interest financing transactions. Now that they are resolved, the agency added, the IRS and Merck should be able to effectively address tax issues arising in subsequent examination years.

Merck observed that it had reserved for those items and that it did now expect a material impact on earnings for 2007. “Given the theoretical amount in disagreement, it was in the company’s best interests to reach this settlement so as to remove the uncertainty and cost of potential litigation,” the company stated in a press release.

The IRS noted that the resolution is one of the largest in recent years between the agency and a taxpayer, and both parties acknowledged the cooperation required to reach “an agreement of this magnitude.”