Chinese police on Wednesday said they had charged the former boss of
GSK's China business and other colleagues, in the biggest corruption
scandal to hit a foreign company there since four Rio Tinto
executives were jailed in 2009.
Although the corruption charges target executives rather than the
company itself, the mounting allegations made by Chinese media
suggest the drugmaker is far from safe.
The Legal Daily newspaper, run by the ruling Chinese Communist
Party's Political and Legal Committee, reported on Friday that GSK
intentionally imported Lamivudine, used to treat HIV 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 import value-added tax and
corporate income tax," the report said.
The report followed less-detailed allegations by state news agency
Xinhua saying GSK used transfer pricing to artificially reduce its
profits and tax bill in China.
GSK officials in Shanghai and London declined to comment, despite
repeated phone, text and email requests from Reuters since Friday.
The drugmaker said on Wednesday that the graft charges were
"shameful" and that it hoped to reach a resolution to enable it to
continue serving Chinese consumers.
Chinese police charged Mark Reilly, the former British boss of GSK's
China business, and other colleagues with corruption last week,
after a 10-month probe found the firm made billions of yuan from
elaborate schemes to bribe doctors and hospitals.
The allegations against GSK have damaged its reputation and led to
an overhaul of operations in what is set to become the world's
second-biggest pharmaceutical market behind the United States within
three years, according to consultancy IMS Health.
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The Legal Daily report also said that GSK had avoided import taxes
by donating some of the imported drug to support state-backed
treatment of the disease, adding GSK could have donated cheaper
drugs that it produced at a plant in Suzhou instead.
"The most serious thing is that through this sham charity, GSK
blocked the Chinese government making its own generic drugs to treat
AIDS, so that it could attain a monopoly over the hepatitis drug
market," the Legal Daily said.
Xinhua also reported earlier that GSK had spent tens of millions of
yuan to bribe hospitals to use Lamivudine after it lost patent
protection in 2010.
Legal sources and one source with direct knowledge of the GSK
investigation have said that Chinese authorities may be looking to
charge the company itself, which could put the drugmakers license to
operate in China at risk.
($1 = 6.2334 Chinese Yuan)
(Reporting by Adam Jourdan in SHANGHAI, Sui-Lee Wee and Xiaoyi Shao
in BEIJING; Editing by Michael Urquhart)
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