The Organisation for Economic Co-operation and Development’s (OECD) plan to tackle 'Base erosion and profit shifting' (BEPS) could have an impact on pharmaceutical’s ability to produce new drugs, and companies need to start preparing for the change.
The OECD’s plan will ensure that multi-nationals disclose profits, taxes and turnover in countries where they have economic activity. Chris Stirling, Global Head of Life Sciences for KPMG, comments: “In response to public concerns, the OECD wants to achieve greater transparency over multinational tax affairs and ensure that taxation aligns with where economic activity and value creation takes place. The OECD’s work represents a shift in the international tax landscape. Pharmaceuticals should engage with the changes and will need to embrace them for the future.
“The change could however have an impact on the post-tax profitability of Pharmaceutical companies, which may affect their ability to invest in essential research and development.
“The other issue that can’t be ignored is the likelihood of disputes over where profit should be taxed. Businesses will have to agree if it’s the decision to fund a clinical trial that drives value, or, is it the local management of the clinical that drives the value? In order to effectively manage this risk, Pharmaceuticals will need to provide tax authorities with a clear understanding of what drives value across the portfolio of products.
“Pharmaceuticals should start to model the effect of these changes on their forecasts and future tax profile to quantify the impact and prioritise areas for focus and review. If the sector’s main players want to gain greater certainty over their future tax liabilities and maintain a flow of funds for R&D, they need to reconsider their organisational, legal and funding structures. They will also need to quantify the value of intellectual property and intangible expenditure such as R&D and marketing.”
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