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SHANGHAI, May 19 (Reuters) - A Chinese state-run newspaperhas accused British drugmaker GlaxoSmithKline Plc ofevading at least 100 million yuan ($16.04 million) in taxes,adding to pressure on the firm which is already struggling withgraft charges against executives.
Chinese police on Wednesday said they had charged the formerboss of GSK's China business and other colleagues, in thebiggest corruption scandal to hit a foreign company there sincefour Rio Tinto executives were jailed in 2009.
Although the corruption charges target executives ratherthan the company itself, the mounting allegations made byChinese media suggest the drugmaker is far from safe.
The Legal Daily newspaper, run by the ruling ChineseCommunist Party's Political and Legal Committee, reported onFriday that GSK intentionally imported Lamivudine, used to treatHIV as well as hepatitis, at an elevated cost.
Along with using tax loopholes for charitable donations,this helped GSK "avoid over 100 million yuan in importvalue-added tax and corporate income tax," the report said.
The report followed less-detailed allegations by state newsagency Xinhua saying GSK used transfer pricing to artificiallyreduce its profits and tax bill in China.
GSK officials in Shanghai and London declined to comment,despite repeated phone, text and email requests from Reuterssince Friday. The drugmaker said on Wednesday that the graftcharges were "shameful" and that it hoped to reach a resolutionto enable it to continue serving Chinese consumers.
Chinese police charged Mark Reilly, the former British bossof GSK's China business, and other colleagues with corruptionlast week, after a 10-month probe found the firm made billionsof yuan from elaborate schemes to bribe doctors and hospitals.
The allegations against GSK have damaged its reputation andled to an overhaul of operations in what is set to become theworld's second-biggest pharmaceutical market behind the UnitedStates within three years, according to consultancy IMS Health.
HIDING PROFITS
The Legal Daily report also said that GSK had avoided importtaxes by donating some of the imported drug to supportstate-backed treatment of the disease, adding GSK could havedonated cheaper drugs that it produced at a plant in Suzhouinstead.
"The most serious thing is that through this sham charity,GSK blocked the Chinese government making its own generic drugsto treat AIDS, so that it could attain a monopoly over thehepatitis drug market," the Legal Daily said.
Xinhua also reported earlier that GSK had spent tens ofmillions of yuan to bribe hospitals to use Lamivudine after itlost patent protection in 2010.
Legal sources and one source with direct knowledge of theGSK investigation have said that Chinese authorities may belooking to charge the company itself, which could put thedrugmakers license to operate in China at risk. ($1 = 6.2334 Chinese Yuan) (Reporting by Adam Jourdan in SHANGHAI, Sui-Lee Wee and XiaoyiShao in BEIJING; Editing by Michael Urquhart)
