AstraZeneca's £505m transfer price taxes settled

ASTRAZENECA, one of Europe's largest drugs companies, has settled a 15-year tax dispute with the UK Treasury, agreeing to pay £505 million to avoid a legal battle.

The settlement, which related to a dispute over how much companies should pay to buy goods from their own overseas subsidiaries, was well below the 890m the Anglo-Swedish group had set aside, allowing it to upgrade its profit forecasts yesterday.

Both AstraZeneca and the Treasury had made a joint referral to the UK tax court after the two parties failed to come to an agreement on the issue, with the case due to be heard in the coming months.

While companies are meant to pay market rates when trading between their own subsidiaries, tax authorities believe some companies set prices to direct profits to countries with lower tax rates, so cutting their overall tax bill.

Tax authorities around the world are attempting to crack down on such price manipulation, known as transfer pricing.

Under the terms of yesterday's deal, AstraZeneca will pay the Treasury 350m next month and the remaining 155m in March 2010.

"As a result of this release, the group tax rate for 2010 will be approximately two percentage points lower than previous guidance," the company said in a statement.

This is expected to boost AstraZeneca's earnings by about 15 US cents a share.

Shares in the FTSE-100 company closed up 7p or 0.25 per cent at 2,817p.