Tag: Active Pharmaceutical Ingredient (API)

Amgen in Billion Dollar Transfer Pricing Dispute with the IRS

Amgen in Billion Dollar Transfer Pricing Dispute with the IRS

Amgen, in its quarterly report for the period ended March 31, 2022, disclosed that, not only has the group been issued a notice of assessments from the IRS for FY 2010-2012 resulting in additional taxes of approximately $3.6 billion plus interest – as previously reported – it has also received a Revenue Agent Reports (RAR) for 2013-2015 resulting in additional taxes of approximately $5.1 billion, plus interest and penalties of approximately $2.0 billion. Furthermore, it is disclosed that Amgen is currently under examination by the IRS for the years 2016, 2017 and 2018 and by a number of state and foreign tax jurisdictions The main dispute relates to the allocation of profits between Amgen group entities in the United States and the U.S. territory of Puerto Rico. Excerpt from Amgen’s quarterly report for the period ended March 31, 2022 4. Income taxes The effective tax rates for the three months ended March 31, 2022 and 2021, were 11.9% and 11.4%, ... Read more

TPG2022 Chapter VI paragraph 6.123

In conducting a comparability analysis, it may be important to consider the stage of development of particular intangibles. It is often the case that an intangible is transferred in a controlled transaction at a point in time before it has been fully demonstrated that the intangible will support commercially viable products. A common example arises in the pharmaceutical industry, where chemical compounds may be patented, and the patents (or rights to use the patents) transferred in controlled transactions, well in advance of the time when further research, development and testing demonstrates that the compound constitutes a safe and effective treatment for a particular medical condition ... Read more

TPG2022 Chapter VI paragraph 6.94

For example, a pharmaceutical product will often have associated with it three or more types of intangibles. The active pharmaceutical ingredient may be protected by one or more patents. The product will also have been through a testing process and a government regulatory authority may have issued an approval to market the product in a given geographic market and for specific approved indications based on that testing. The product may be marketed under a particular trademark. In combination these intangibles may be extremely valuable. In isolation, one or more of them may have much less value. For example, the trademark without the patent and regulatory marketing approval may have limited value since the product could not be sold without the marketing approval and generic competitors could not be excluded from the market without the patent. Similarly, the value of the patent may be much greater once regulatory marketing approval has been obtained than would be the case in the absence ... Read more
Perrigo has settled its €1.6 billion tax bill with the Irish Revenue for €297 million

Perrigo has settled its €1.6 billion tax bill with the Irish Revenue for €297 million

Pharmaceutical group Perrigo has settled a €1.6 billion case with the Irish Revenue Commissioners for €297 million. Perrigo was issued a tax assessment in 2018. The assessment related to Perrigo’s tax treatment of income generated by the sale of the rights to Tysabri – a drug for the treatement of multiple sclerosis. The tax authorities held that proceeds form the sale of these rights – more than $ billion – was a capital transaction taxed at a rate of 33%, while Perrigo had treated the proceeds as trading income taxed at the standard rate of 12.5%. In November 2020 Perrigo lost the case at the Irish High Court. Following the settlement Perrigo issued an announcement “While the Company believes that its tax position was correct and would ultimately have been confirmed by the Tax Appeals Commission, given the risks inherent in any litigation, as well as the ongoing costs of what could have been years of litigation and the uncertainty ... Read more

TPG2017 Chapter VI paragraph 6.94

For example, a pharmaceutical product will often have associated with it three or more types of intangibles. The active pharmaceutical ingredient may be protected by one or more patents. The product will also have been through a testing process and a government regulatory authority may have issued an approval to market the product in a given geographic market and for specific approved indications based on that testing. The product may be marketed under a particular trademark. In combination these intangibles may be extremely valuable. In isolation, one or more of them may have much less value. For example, the trademark without the patent and regulatory marketing approval may have limited value since the product could not be sold without the marketing approval and generic competitors could not be excluded from the market without the patent. Similarly, the value of the patent may be much greater once regulatory marketing approval has been obtained than would be the case in the absence ... Read more
Canada vs. GlaxoSmithKline. October 2012, Supreme Court

Canada vs. GlaxoSmithKline. October 2012, Supreme Court

The Canadian Supreme Court ruled in the case of GlaxoSmithKline Inc. regarding the intercompany prices established in purchases of ranitidine, the active ingredient used in the anti-ulcer drug Zantac, from a related party during years 1990 through 1993. The Supreme Court partially reversed an earlier determination by the Tax Court, upholding a determination by the Federal Court of Appeals in its conclusion that if other transactions are relevant in determining whether transfer prices are reasonable, these transactions should be taken into account. However, the Supreme Court did not determine whether the transfer pricing method used by GlaxoSmithKline Inc. was reasonable, and instead remitted the matter back to the Tax Court. Canada_Glaxo_Supreme-Court ... Read more
Turkey vs Pharmaceutical Industry and Trade Corporation, December 2011, Danıştay Üçüncü Dairesi, E. 2009/2352, K. 2011/7637, UYAP, 20.12.2011.

Turkey vs Pharmaceutical Industry and Trade Corporation, December 2011, Danıştay Üçüncü Dairesi, E. 2009/2352, K. 2011/7637, UYAP, 20.12.2011.

A Turkeys Pharma Company carried out drug production, import and sales operations, and had purchased different active ingredients from foreign group companies. Following an audit the tax office found that the prices paid by the Pharma Company for six ingredients had been above the market price resulting in a hidden distribution of profits. A price study was performed for similar active ingredients suggesting price deviations ranging from 167 – 975 % Table 2: Price deviation from market price Theophylline 167.26% ibuprofen 478.34% Fluoxetine 975.15% Hyoscine-N-Butilbrüm 150.13% Povidone Iodine 176.83% metamizolesodi 260.05% An assessment was issued where the cost of the ingredients – and thus taxable income of the Pharma company – was adjusted based on the price paid for similar active ingredients between unrelated parties. The Pharma Company disagreed with the assessment and brought the case before the tax court. The Tax Court issued a decision in favor of the Pharma company. In a study from the Turkish Pharmaceutical Association ... Read more
India vs. Fulford (India) Limited, July 2011, Income Tax Appellate Tribunal

India vs. Fulford (India) Limited, July 2011, Income Tax Appellate Tribunal

Fulford India Ltd. imported active pharmaceutical ingredients (APIs) from related group companies and sold them in India. The TNM method was used for determening transfer prices. The tax administration found the CUP method to be the most appropriate. Fulford India argued that the CUP method requires stringent comparability and any differences which could materially affect the price in the open market should be taken into consideration. In the pharmaceutical world, APIs whith similar properties may still be different in relation to quality, efficiancy, impurities etc. Therefore, the two products cannot be compared. In court, it was further explained that Fulford also performed secondary manufacturing functions, converting the APIs into formulations. Hence, Fulford could be descriped as a value added distributor. The Court concluded that the selection of the best method should be based on functional analysis and the characterisation of the transactions and the entities. The fact that Fulford had secondary manufacturing activities had not previously been explained to the ... Read more
Korea vs Pharma Corp, September 2007, Supreme Court, Case No 2007두13913

Korea vs Pharma Corp, September 2007, Supreme Court, Case No 2007두13913

A Korean pharma corporation produced and sold finished pharmaceuticals. Active ingredients were imported from foreign related parties in the United States and Ireland. The Korean pharma corporation produced and sold the original finished products by importing the five original patented raw materials that had expired from the patent period in each business period from December 1, 2001 to November 30. The tax authorities calculated the normal price of the original raw materials by a comparable third party pricing method. As for the specific methodology, the median price of imported generic raw materials for other domestic pharmaceutical companies was calculated by multiplying the ratio between the original product and the medical insurance price of the drug (generic finished product) produced by the domestic generic raw material by other domestic pharmaceutical companies. After calculating the normal price of the raw materials, the difference between the original price of the original raw materials and the difference between the original price and the normal ... Read more
Philippines vs CYANAMID PHILIPPINES, INC, August 1995, Tax Court, CTA CASE No. 4724

Philippines vs CYANAMID PHILIPPINES, INC, August 1995, Tax Court, CTA CASE No. 4724

Cyanamid Philippines, INC was engaged in the marketing of various products in the areas of pharmaceutical, animal health and nutrition, and crop protection chemicals as well as medical devices. The tax authorities issued an assessment for deficiency income tax, arising from (a) overstatement of cost of goods due to transfer pricing of products, namely; aurofac and minocycline, which petitioner purchased from its parent company, American Cyanamid; and (b) unnecessary and unreasonable payment of royalties to the latter company for the supply of technical know-how. Judgement of the Tax Court The Court decided in favour of Cyanamid Philippines. According to the court, the tax authorities had acted in an arbitrary, unreasonable, and capricious manner. There were no apparent attempt to verify the comparability of the pharmaceutical products being compared under a comparable uncontrolled price (CUP) method analysis. “It can be gleaned readily from the facts that the physical property and circumstances in the processing and sale of petitioner’s products are not “identical” or ... Read more