Merck & Co. (NYSE: MRK) said Wednesday it will pay $2.3 billion in taxes, interest and penalties to settle a dispute with the Internal Revenue Service.

The drug maker says the arrangement should bring to end disagreements with the IRS dating from 1993 to 2001.

The Whitehouse Station, N.J. company said that it had previously reserved funds for those expenses, adding that agreement will not affect its 2007 earnings.

This settlement resolves all of the issues that were in dispute, Merck said in a released statement.

Last November, Merck said there were potential liabilities of taxes, interest and penalties of $5.58 billion from disputes with the U.S. and Canada. The U.S. dispute with the IRS was estimated to be $3.82 billion.

Merck did not explain the difference between the November expectations and the settlement price announced today.

However the company indicated that it settled to avoid uncertainty and litigation.

Merck acknowledges that this agreement was reached as a result of the cooperation and reasonableness of the IRS and the Company, the company said.

The Wednesday settlement stems from a transaction which allowed the company to shift taxable income to a subsidiary, but avoid the financial loss of shifting Wall Street Journal reported in September that.

The report said that the deal allowed the company to save $1.5 billion in taxes in about a decade.

The Journal reports that there is still a pending tax dispute with Canada, who seek an additional $1.76 billion in taxes and interest from the company since 1998.

Merck shares closed up 0.30 percent, or 13 cents, to $44.08 in Wednesday trading on the New York Stock Exchange.

Canada New Jersey Settlement