Sun. Feb 5th, 2023
Heather Bresch, CEO of Mylan Inc, in 2015, the year the company underwent a tax inversion.
Enlarge / Heather Bresch, CEO of Mylan Inc, in 2015, the year the company underwent a tax inversion.

Reviewing Mylan’s tax returns, Reuters discovered an intriguing investment from the pharmaceutical company: refined coal.

Since 2011, the company has bought 99 percent of the shares in five U.S. companies that process coal to make it burn cleaner. Mylan then sells the coal at a tax-deductible loss and earns tax credits designed to encourage cleaner energy production. Over the past six years, the drugmaker has earned hundreds of millions in tax credits that lowered its already very low tax rate and boosted its overall profits.

According to Reuters, the credits helped Mylan lower its tax rate to just over four percent in 2014 and to 7.4 percent in 2015. Also that year, the company underwent a tax inversion, moving its U.S. headquarters to the Netherlands to lower its tax rate. . In 2016, the company had a $358 million tax break, giving it an effective tax rate of -294 percent.

In comments emailed to Ars, Mylan verified that the numbers and information in the Reuters report were accurate. It highlighted that the federal refined coal tax credit program “is being used by a number of other large public companies in various industries.” However, Reuters notes in its report that “Mylan is one of the few publicly traded companies, and the only publicly traded pharmaceutical manufacturer, to use these tax credits,” according to the assessment of U.S. Securities and Exchange Commission filings.

News of the unusual investment comes on the eve of Mylan’s annual meeting, at which investors will vote on the board of directors. A group of shareholders, frustrated by the EpiPen price scandal and board member’s eye-watering pay packages, has been working to rally other shareholders to fire the current board. Last week, independent consultancy Institutional Shareholder Services (ISS), which advises shareholders on how to vote, also urged Mylan’s investors to fire the board and members of the compensation committee.

New York City Comptroller Scott Stringer, who oversees New York City pensions that own more than 1.1 million shares of Mylan, is leading the campaign against Mylan’s current board. In an emailed statement to Ars, Stringer was quoted as saying:

“From the EpiPen price debacle to embracing complex tax avoidance strategies, Mylan’s board seems more focused on financial engineering than the company’s core business. These short-term strategies have enriched executives, often at the expense of long-term shareholders, consumers and American taxpayers. It’s unclear whether the pharmaceutical company’s board of directors understands the risks of Mylan’s coal tax shelter investments — and whether it is qualified to oversee them. Mylan shareholders need a board that is focused on creating sustainable shareholder value.”

The refined coal tax credits expire in 2021.

According to tax documents, Mylan currently holds a 99 percent interest in: Canton Fuels Company of Illinois, Chouteau Fuels Company of Oklahoma, Deogun Manufacturing Company of Utah, Marquis Industrial Company of Indiana and Powder Street LLC of West Virginia.

In recent years, Mylan has reported on the large pre-tax losses from its operations, which are said to be tax-deductible. Losses were $92.3 million in 2016, $93.2 million in 2015 and $78.9 million in 2014. Still, the tax benefits that these operations bring are very valuable. Reuters reports that companies received $6.81 in tax credit per ton of refined coal. Mylan produced 16 million tons of refined coal in 2016.

Mylan Chief Executive Heather Bresch, one of the board members being ousted by angry shareholders, has a personal connection to the coal country, Reuters points out. She is the daughter of US Senator Joe Manchin of West Virginia, the second largest coal-producing state in the US. Mylan declined to comment on any such connection to Reuters or explain how Mylan got into the coal tax cuts. It also did not address the issue in communications with Ars.

Here is Mylan’s full statement to Reuters and Ars:

“In 2004, the federal government updated the longstanding Section 45 of the Internal Revenue Code, which encourages and incentivizes private capital investment in renewable energy, to include incentives to invest in the use of emission-reducing refined coal in the production of electricity . This program grants a tax credit to any company willing to invest in refined coal facilities and finance the additional cost of production. Often these investments are made outside the normal course of a business, and companies involved in such projects are in a variety of non-energy related sectors. Mylan made these investments in refined coal production under Section 45 as of 2011. The investments you list are correct, as are the numbers for 2014-2016. The tax credits generated in each of the years 2013 and 2012 were significantly less than (actually less than half of) the tax credits generated in the later years. We have no unused credits. We note again that this program is used by a number of other large public companies in various sectors.”

By akfire1

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