Merck faces $5.6B tax liability

Drugmaker says problems in U.S., Canada are related to disputes over accounting for past transactions.

NEW YORK ( -- Drugmaker Merck & Co. faces a potential $5.58 billion in tax liabilities from U.S. and Canadian authorities related to a number of disputes over accounting for past transactions, the company said in a filing Tuesday.

Merck (Charts) said in the filing with the Securities and Exchange Commission that it disagrees with the proposed tax adjustments and plans to pursue the matters through Internal Revenue Service and judicial procedures, as necessary.


"Management currently believes that the resolution will not have a material adverse effect on the company's financial position or liquidity," the company said in the filing.

A Merck spokesman was not immediately available for comment.

The Internal Revenue Service issued a proposed adjustment related to a 1993 partnership that could add up to a potential total of $2.32 billion, including an estimated adjustment to tax bills as well as related interest and penalties, according to the filing.

Another dispute involves minority interest equity financing arrangements for several years between 1995 and 2004, which combined could lead to a tax bill of $960 million, including interest.

The IRS also proposed a recharacterization of a loan from a foreign subsidiary that could lead to an additional bill of $540 million, including tax due plus interest.

Merck also said it had previously disclosed that its Canadian tax returns for the years 1998 through 2004 were being examined by the Canada Revenue Agency (CRA).

It said the CRA issued it a notice last month with adjustments for intercompany pricing resulting in additional tax due of about $1.4 billion and $360 million interest.

The company said it disagrees with the CRA and intends to contest the assessment through the tax agency's process and through the courts if necessary.

Merck shares rose 9 cents Tuesday. Other pharmaceutical companies, including Bristol-Myers Squibb (Charts), Johnson & Johnson (Charts) and Pfizer (Charts), rose more significantly.

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