AstraZeneca has raised its full-year earnings forecast after agreeing a deal that will reduce its tax bill in the UK and the USA.
The Anglo-Swedish drugmaker has been informed that the UK and US governments’ tax authorities have agreed to the terms of transfer pricing arrangements for AstraZeneca’s US business for the period from 2002 to the end of 2014. Another deal with US officials has been also been agreed on a related valuation matter arising on the integration of its US businesses in 2000 following the Astra and Zeneca merger in 1999.
Based on these agreements, AstraZeneca now expects to pay $1.1 billion to resolve these issues. However, the company noted that it has been setting aside funds to deal with these "complex transfer pricing considerations that have taken many years to resolve" and there is cash left over.
This will now result in a benefit to earnings in the first quarter of some $500 million and the tax rate for 2011 is expected to be 21%, 6% less than previous guidance. Given this scenario, AstraZeneca has increased its 2011 target for core earnings per share from $6.45-$6.75 to $6.90-$7.20.
The news has boosted the company's share price and at 10am this morning, the stock was up 1.2% at £29.09.