The Internal Revenue Service announced Monday that it had settled a dispute with the pharmaceutical giant GlaxoSmithKline Holdings (Americas) under which Glaxo will pay $3.4 billion in the largest tax dispute in IRS history.

The case is pending in the United States Tax Court, the agency said in a statement.

The agreement covers a transfer pricing dispute for the tax years 1989 through 2000. It also settles tax issues for the 2001-2005 period. The dispute involves intercompany transactions between Glaxo and certain of its foreign affiliates relating to various GSK pharmaceutical products.

Under the settlement, Glaxo will also abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, the IRS said.

"We have consistently said that transfer pricing is one of the most significant challenges for us in the area of corporate tax administration," said Mark W. Everson, IRS commissioner. "The settlement of this case is an important development and sends a strong message of our resolve to continue to deal with this issue."

Glaxo, in a statement, said the net cash cost to GSK will be approximately $3.1 billion, covering federal, state and local taxes, interest and also the benefit of tax relief on the payments made.

It said Glaxo had previously made provision for the dispute and the settlement will not have a significant impact on the company's reported earnings or tax rate.