"They have done what they can to drive up their costs, to make themselves as artificially unprofitable as possible in Australia and make them more profitable in other jurisdictions to avoid paying tax here," committee chairman Sam Dastyari, a Labor senator, said.

"It's extraordinary that nine companies that are as profitable as the nine big pharma companies in this county only paid a tax bill of $85 million."

Tax is paid on profit, not revenue. Nevertheless, the tax minimisation efforts of big pharma did not "pass the pub test", committee members said outside the inquiry.

"They are certainly compliant with the ATO; none of them are under investigation," Liberal senator for South Australia Sean Edwards said.

"However, hand on heart the system is not right."

South Australian independent senator Nick Xenaphon said: "It doesn't make sense that a multibillion-dollar multinational pharmaceutical company seems to be paying less proportionally in tax than someone who's earning $50,000 a year."

Denials from big pharma

Executives representing nine companies, including Pfizer, Johnson and Johnson, Roche and GlaxoSmithKline, told the committee they obeyed all Australian and international tax laws.


"We do not use tax havens," GlaxoSmithKline global head of tax Melissa Geiger said.

Pharmaceutical companies largely operate as distributors in Australia.

That is, they import drugs that are developed and manufactured by other parts of the business elsewhere in the world.

The concern is that the Australian subsidiaries purchase drugs at inflated prices to minimise profit recorded in Australia, which has a comparatively high corporate tax rate at 30 per cent.

Transfer pricing rules try to ensure the price one entity charges another is the same as if the two parties were unrelated.

Tax Commissioner Chris Jordan said in previous years many pharmaceutical companies reported zero profit but had started to record earnings before interest and taxes of between 4 and 8 per cent.


However, some of the evidence on transfer pricing arrangements contained inconsistencies, he said.

The Australian Tax Office will this year test the price structures of pharmaceutical companies according to strengthened transfer pricing rules, which kicked in on January 1.

"They are going to have to lift their game," ATO international deputy commissioner Mark Konza told the committee.

Greens senator Christine Milne said it was obvious that the companies set their prices according to what the market could bear – including the cushioning influence of the government-subsidised pharmaceutical benefits scheme – not what it actually cost to make and distribute drugs.

She said there was some

"We've seen the big end of town in action with the mining companies avoiding their tax, we've seen the big tech companies avoiding tax and today the big pharma companies avoiding tax," she said.