EXPORTING OUR DRUG PROFITS

An urgent meeting has been called by Dennis Darvan, CEO of Tearless Drug Corp. and his VP Communications, Sylvia Slipstream.

"Sylvia, we could have a Public Relations nightmare on our hands."

"What's the problem, Chief?"

"We have to bring our overseas drug profits home to the States to take advantage of President Bush's tax holiday."

"That's not a problem, Chief. We can bring $20 billion home and pay only 5.25 percent taxes instead of the normal 35 percent corporate tax rate. We'll be dodging about $6 billion in taxes."

"Sylvia, the problem is that we’ve been exporting our U.S. drug profits overseas to take advantage of lower tax rates in places like Ireland and Singapore. Last year we only had to pay taxes of 15 percent on our worldwide pre-tax profits."

"It makes the stockholders happy, Chief. What's the problem?”

"How do we explain that our overseas operations are far more profitable than our American operations?"

"Well, Chief, there are many large companies that make more money overseas......"

"Sylvia, listen to me with your whole head. We sell 30 percent less overseas than we do in the U.S. Our prices abroad are 40 percent lower than our U.S. prices. But we claim that our overseas profits are over 100 percent higher than our U.S. profits."

"You mean we make far more money where we sell less and charge less than in the U.S., our biggest market, where have our highest prices?”

"Yes, Sylvia. That’s the problem. To keep U.S. prices high, our lobbyists had to convince Congress that our overseas prices were too low. Then, using a couple of slick tax loopholes, we transferred our domestic patents to our overseas plants where the corporate taxes were lower than in the USA. This allows us to export our profits."

"Oops! That's right, Chief, we’ve been telling the public that we need high drug prices in the U.S. to support all of our research efforts."

"Sylvia, to take advantage of this new tax holiday, you have to say that places with government-controlled low drug prices produce far more profit than we do in the States, where the sky's the limit on drug pricing."

"Uh, Chief. How big is the discrepancy?"

"Right now, Sylvia, we’re saying our profit margins in low-price countries are 45 percent and our margins in the high-priced U.S. market are only 15 percent."

"I’m supposed to convince Congress that we make three times more where our prices are low, and only one-third as much where our prices are high?"

"Don't worry about Congress, Sylvia. Our lobbyists have Congress in the bag. It's Wall Street that I’m worried about."

"Why Wall Street, Chief?"

"Some of those analysts are debunking our figures. One guy claims we make 60 percent of our profit in the U.S. and another says we make over 70 percent. Some people are suggesting that this profit repatriation is just a scam."

"Chief, this is terrible. If the press picks up on this and claims we never really made those profits overseas in the first place, we could be on the hook for tens of billions in back taxes."

"And we could lose the benefits of this tax holiday because people could claim we had never had the foreign profits to bring home in the first place."

"What do you want me to do, Chief?"

"You’ve got to come up with some new math for the press, Sylvia."

"Something like, 'less is more,' Chief?”

"It's vital, Sylvia. The drug industry has a great system going here. We export our U.S. profits overseas to dodge U.S. taxes and then our lobbyists get Congress to pass a tax holiday bill every five years so we can bring the money home at 5 percent or so."

"Chief, you're a genius."