The drug industry has been labelled "passive aggressive" after responding to tough questions over its use of tax minimisation by warning paying more tax would damage the economy.

The warning was contained in a "supplementary submission" to the Senate tax avoidance inquiry, following a public hearing a fortnight ago that saw nine drug bosses subjected to intensive scrutiny of their companies' financial affairs.

The inquiry heard drug companies pay taxes of around $85 million on income of around $8 billion, made possible through transfer pricing schemes with overseas branches.

The chief executives were accused of being evasive and immoral after dodging questions about the true value of the drugs they imported and their aggressive use of transfer pricing.

"There were at the hearings, some perhaps misconceptions and misunderstandings," Medicines Australia chief executive Tim James said.

The submission warns against an erosion of public confidence in the tax system through simplistic descriptions of complex financial arrangements.

"Any move to unilaterally and adversely change tax practices ... could have a very detrimental effect on the level of investment and activity in Australia," Mr James told the ABC.

Independent senator Nick Xenophon, who sits on the Senate committee conducting the inquiry, is calling the submission a "veiled threat".

"It does seem to be a pretty passive aggressive response," he told the ABC.

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