The Inland Revenue Department said claims from the charity group Oxfam that pharmaceutical companies in New Zealand are underpaying tax by $21 million "completely misrepresents" the situation here.

Inland Revenue international strategy manager John Nash said in a statement the Oxfam report was "clearly incorrect" and relied on flawed methodology.

"Obviously we can't comment on specific taxpayers but taking a global profitability figure and applying it across the board, as this report does, cannot illustrate what's really happening in this country," he said in a statement.

"The report tries to apply a globally derived profit margin figure of 15-16 per cent to New Zealand drug company revenue of $519m and concludes that they have underpaid tax by $21 million," he said.

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"This is clearly incorrect given the type of operations that multinational pharmaceutical companies actually undertake in New Zealand," Nash said.

He said the Oxfam methodology applied a global average profit margin to the New Zealand operations of pharmaceutical companies while at the same time acknowledging that profit margins were not uniform all over the world.

"The main driver of profitability in this industry is the creation and development of intellectual property but such activities are not generally carried out in New Zealand," he said.

"It's important to examine what multinationals actually do in a specific country such as New Zealand and how value is added, before arriving at a conclusion that insufficient taxation has been paid," he said.

The New Zealand operations of pharmaceutical companies were almost entirely lower margin activities like distribution, he said.

Oxfam, in its report, said its analysis of the financial disclosures from four global drug companies between 2013 and 2015 suggested they were shifting profits abroad, into tax havens that charged little or no tax.