US pharmaceutical companies will be forced to answer questions this week from lawmakers, who have been grilling them on their history of using Bermuda for tax purposes.

Questions will also arise on how their taxable contributions will be affected by Bermuda’s new corporate tax structure, going forward.

Elizabeth Warren, the senator from Massachusetts, and Jan Schakowsky, the congresswoman from Illinois, sent letters to five pharmaceutical companies including AbbVie, Pfizer, Merck, Johnson & Johnson and Amgen, accusing them of paying little to no federal taxes despite billions in profits.

In the case of AbbVie, the Illinois-based drugmaker reported $3.72 billion in global profit in 2024 yet claimed a negative tax liability in the United States, essentially receiving a tax benefit, according to the letter.

The lawmakers allege these companies avoided US taxes by shifting profits to offshore subsidiaries in lower-tax jurisdictions such as Ireland and Bermuda.

Ms Warren and Ms Schakowsky argue that this practice “illustrates just one of the ways in which our tax code has been skewed to benefit wealthy pharmaceutical corporations”.

They place part of the blame on the 2017 Tax Cuts and Jobs Act, which they say created new incentives for multinationals to move profits overseas.

Under that law, income earned by foreign affiliates of US companies can be taxed at about half the domestic tax rate — as low as about 10.5 per cent under the Global Intangible Low-Taxed Income provision — instead of the full 21 per cent corporate rate.

According to the lawmakers, the five pharma giants combined have paid virtually nothing in US income taxes since 2018, despite together earning over $429 billion in profits during that period.

AbbVie alone posted US losses of nearly $8 billion in 2024 while making over $11 billion in profit abroad, mostly in Bermuda, the letter noted.

In fact, an analysis by the Council on Foreign Relations found this pattern is common: Merck, Pfizer, Johnson & Johnson and others similarly report large losses in the US and hefty profits overseas in lower-tax locales.

AbbVie’s Bermuda connection has been well documented. The company, which produces the world’s bestselling anti-inflammatory drug, Humira, has for years channelled profits through a Bermuda subsidiary by assigning its valuable patents to that entity.

Reuters revealed that about two thirds of Humira’s 88 US patents were registered in the name of AbbVie’s Bermuda unit, AbbVie Biotechnology Ltd, located at a law firm’s address in Hamilton.

By holding the drug’s intellectual property in Bermuda, AbbVie can have its other global divisions pay hefty patent royalties to the Bermuda subsidiary, Reuters reported.

Despite generating more than half of its sales in the US — including over $12 billion in US Humira sales in 2017 — and conducting most of its research and development at home, AbbVie has never reported a profit in its home country.

Instead, the profits from American drug sales are largely booked in places like Bermuda. For example, in 2017, AbbVie’s Securities and Exchange Commission filing showed $10.4 billion in pre-tax earnings booked abroad on just $9.97 billion in overseas revenue.

The US Senate Finance Committee found in 2022 that over 75 per cent of AbbVie’s sales occurred in the US yet only 1 per cent of its income was reported in the US for tax purposes, according to Reuters.

AbbVie Biotechnology Ltd pays no corporate income tax under Bermuda’s traditional regime.

However, under the new corporate income tax — effective January 1 — multinational groups with annual revenue over €750 million (about $877 million) are taxed at 15 per cent in Bermuda.

Notably, AbbVie’s Bermuda subsidiary has no employees or physical office on the island. Bermuda’s former Minister of Finance, Bob Richards, lamented in 2017 that these types of companies contribute little to the island apart from registration fees, even as they provoke criticism of Bermuda’s role as a so-called tax shelter.

In 2017, Mr Richards hiked the annual government fee for exempt companies without local offices from $1,995 to $25,000, saying, according to The Royal Gazette, that Bermuda “did not place a high value” on businesses that park profits here with no real presence.

Many such firms paid the fee and stayed, given the far greater tax savings at stake.

The letters sent to AbbVie and its peers demand detailed answers by July 1 on how much the companies spend on lobbying for tax breaks, how they structure their operations offshore and how much US tax they would owe if all profits were booked at home.

One question asks how AbbVie could claim an $11 billion profit in Bermuda, where it has no workers, while simultaneously reporting an $11 billion loss in the US, where it employs about 26,000 people.

So far, AbbVie has declined to publicly comment on the allegations in Ms Warren’s letter, Reuters reported.

The company has consistently maintained that it complies with all tax laws, and in the past it has attributed its low US tax payments to factors like high domestic R&D spending and debt interest costs.

Both AbbVie and the BMA have been contacted by The Royal Gazette for comment on the issue.

• See more on the letter to Big Pharma companies in Related Media

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