Tag: Pharmaceutical

Italy vs Lossmaking SpA, September 2019, Lombardi Regional Tribunal, Case No 928/20/2019

Italy vs Lossmaking SpA, September 2019, Lombardi Regional Tribunal, Case No 928/20/2019

An Italian company belonging to a multinational group operating in the pharmaceutical sector, had recorded operating losses for fiscal years 1997 to 2013, while at a consolidated level the Group showed positive results. According to the Italian tax authorities, the reason why the Italian company was still in operation was due to the fact that the group had an interest in keeping an international profile and to that end the Italian company performed marketing activities benefiting the Group. Assessment was issued where the taxable income of the Italian company was added compensation for inter-company marketing services carried out by the Italian company on behalf of the group. The company argued that the pharmaceutical market and the governmental policy on the prices of medicines in Italy was the reason for the losses. In support of this claim the company submitted broad documentary evidence during the audit. The Court held in favor of the taxpayer. The company had demonstrated the reasons for ... Continue to full case
Perrigo facing billion dollar tax assessments in both Ireland and the US

Perrigo facing billion dollar tax assessments in both Ireland and the US

In July 2013 the Irish pharma company Elan was acquired by the US based Perrigo group for $8.6 billion (£5.6 billion). Ireland’s corporation tax rate was one of the main attractions for Perrigo and the deal was said to give Perrigo substantial tax savings due to a corporate tax inversion. The Irish 12.5 % corporate tax rate compared US rate of 30 % was further augmented by the trading losses built up over a number of years by Elan in its business as a drug development group. That meant that even with a $3.25 billion transaction like Elan’s sale of the rights to the multiple sclerosis drug Tysabri the company would still not have to pay any tax. The low-tax scenario envisioned by Perrigo did not last for long. First Perrigo was issued a $1.9 billion tax bill (excluding interest and penalties) by the Irish tax authorities for incorrect transfer pricing related to its sale of a 50% interest in Tysabri ... Continue to full case
Switzerland vs R&D Pharma, December 2018, Tribunal fédéral suisse, 2C_11/2018

Switzerland vs R&D Pharma, December 2018, Tribunal fédéral suisse, 2C_11/2018

The Swiss company X SA (hereinafter: the Company or the Appellant), is part of the multinational pharmaceutical group X, whose parent holding is X BV (hereinafter referred to as the parent company) in Netherlands, which company owns ten subsidiaries, including the Company and company X France SAS (hereinafter: the French company). According to the appendices to the accounts, the parent company did not employ any employees in 2006 or in 2007, on the basis of a full-time employment contract. In 2010 and 2011, an average of three employees worked for this company. By agreement of July 5, 2006, the French company undertook to carry out all the works and studies requested by the parent company for a fee calculated on the basis of their cost, plus a margin of 15%. The French company had to communicate to the parent company any discoveries or results relating to the work entrusted to it. It should also keep the parent company informed of ... Continue to full case
Pharma and Tax Avoidance, Report from Oxfam

Pharma and Tax Avoidance, Report from Oxfam

New Oxfam research shows that four pharmaceutical corporations — Abbott, Johnson & Johnson, Merck, and Pfizer — systematically allocate super profits in overseas tax havens. In eight advanced economies, pharmaceutical profits averaged 7 percent, while in seven developing countries they averaged 5 percent. In comparison, profits margins averaged 31 percent in countries with low or no corporate tax rates – Belgium, Ireland, Netherlands and Singapore. The report exposes how pharmaceutical corporations uses sophisticated tax planning to avoid taxes. cr-prescription-for-poverty-pharma-180918-en ... Continue to full case

IRS vs Boston Scientific and Guidant, Settlement of $1billion dispute

Just days before trial, Boston Scientific Corp. has agreed to pay the Internal Revenue Service $275 million plus interest to settle more than $1 billion in disputed taxes dating back more than a decade. Boston Scientific has long disputed the IRS’ assertions that the company and its Guidant subsidiary have underpaid corporate taxes by as much as $1.16 billion. The dispute centers on “transfer pricing” and the amount of taxes owed to the United States for intellectual property transferred among its domestic and foreign subsidiaries. The primary issue for all years is related to transfer pricing established under technology license agreements between domestic and foreign subsidiaries of Guidant — how much one subsidiary of the company paid another for the intellectual property necessary to manufacture, sell or market medical devices ... Continue to full case
US vs. Medtronic Inc. June 2016, US Tax Court

US vs. Medtronic Inc. June 2016, US Tax Court

The IRS argued that Medtronic Inc failed to accurately account for the value of trade secrets and other intangibles owned by Medtronic Inc and used by Medtronic’s Puerto Rico manufacturing subsidiary in 2005 and 2006 when determening the royalty payments from the subsidiary. In 2016 the United States Tax Court found in favor of Medtronic, sustaining the use of the CUT method to analyze royalty payments. The Court also found that adjustments to the CUT were required. These included additional adjustments not initially applied by Medtronic Inc for know-how, profit potential and scope of product. The decision from the United States Tax Court has been appealed by the IRS in 2017. US-Memo-2016-112-Medtronic-v.-Commissioner ... Continue to full case
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 ... Continue to full case
Canada vs. McKesson. October 2012. Tax Court

Canada vs. McKesson. October 2012. Tax Court

McKesson is a multinational group involved in wholesale distribution of pharmaceuticals. Its Canadian subsidiary entered into a receivables sales (factoring) agreement with its direct parent, McKesson International Holdings III Sarl in Luxembourg in 2002. Under the agreement, McKesson International Holdings III Sarl agreed to purchase the receivables for about C$460 million and committed to purchasing all the eligible receivables as they arose for the next five years. The price of the receivables was determined at a discount of 2.206 percent from the face amount. The funding to buy the receivables was borrowed in Canadian dollars from an indirect parent company of McKesson International Holdings III Sarl in Ireland and guaranteed by another indirect parent in Luxembourg. The Court didn’t recharacterize the transactions. The Court emphasized that the Canadian Income Tax Act was the only legally binding clause on appeal before the court and that the practice of the CRA under the OECD guidelines was irrelevant. This case recognizes the need to consider other factors (for example, a series ... Continue to full case
Spain vs. Roche, January 2012, Supreme Court case nr. 1626/2008

Spain vs. Roche, January 2012, Supreme Court case nr. 1626/2008

This case is about the consequences of converting a manufacturer and full-fledged distributor into a toll manufacturer and commissionaire, without actually changing the underlying operations. The Supreme Court decided that the restructured Spanish entity acted as a manufacturing agent that created a PE. The profits attributed to the PE included not only the manufacturing profits but also the profits from the distribution activity on behalf of Roche Vitamins Europe Ltd. in Switzerland. Prior to a business restructuring in 1999, the Spanish subsidiary was a full-fledged distributor, involved in manufacturing, importing, and selling the pharmaceutical products in the Spanish and Portuguese markets. In 1999 the Spanish subsidiary and the Swiss parent entered into two agreements. Under the manufacturing agreement, the Spanish subsidiary manufactored products  according to directions and using formulas, know-how, patents, and trademarks from the Swiss parent. These manufacturing activities were remunerated at cost plus 3.3 percent. Under the distribution (agancy) agreement, the Spanish subsidiary would “represent, protect and promote” the products. These activities were remunerated at 2 percent of sales. After entering the ... Continue to full case
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 ... Continue to full case
Sweden vs Ferring AB, June 2011, Swedish Court, Case no 2627-09

Sweden vs Ferring AB, June 2011, Swedish Court, Case no 2627-09

In connection with a restructuring, Ferring Sweden (a Scandinavian pharmaceutical) had transferred intangible assets to a group company in Switzerland. Among the assets transferred was an exclusive worldwide license to manufacture and sell a drug and a number of ongoing R&D projects. The question in the case was whether the price agreed between the Group companies was consistent with the arm’s length principle. The Ferring’s position was that the price was consistent with the arm’s length principle, while the Swedish Tax Agency believed that an arm’s-length price was significantly higher. In support of its pricing, the company had submitted a valuation made by the audit company A, where the value of Ferring after the transfer (the residual company) was compared with the value of the company if it had continued to operate as a full-fledged company (the original company). These values ​​were determined through a present value calculation of the future cash flows in each unit. The difference in value ... Continue to full case
Australia vs. Roche July 2008, Administrative Appeals Tribunal NT 2005/7 & 56-65

Australia vs. Roche July 2008, Administrative Appeals Tribunal NT 2005/7 & 56-65

The Applicant is an Australian subsidiary of the Roche Group, the parent company of which is a resident of Switzerland. Roche is a major pharmaceutical corporation with integrated operations in many countries. It carries on research and development, manufacturing, marketing, selling and distribution of pharmaceuticals, vitamins, chemicals, diagnostic and other products. During the 1993 to 2003 income years (the relevant income years) the Applicant carried on business in Australia marketing, selling and distributing Roche products through three divisions: the Prescription Division (dealing in prescribed drugs), the Consumer Health Division (dealing in over the counter pharmaceuticals) and Diagnostic Products (dealing in diagnostic equipment and supplies). Australia-vs-ROCHE-PRODUCTS-PTY-LTD-July-2008-Administrative-Appeals-Tribunal ... Continue to full case
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 ... Continue to full case
US vs Eli Lilly & Co, October 1998, United States Court of Appeals

US vs Eli Lilly & Co, October 1998, United States Court of Appeals

In this case a pharmaceutical company in the US, Eli Lilly & Co, transferred valuable pharmaceutical patents and manufacturing know-how to its subsidiary in Puerto Rico. The IRS argued that the transaction should be disregarded (substance over form) and claimed that all of the income from the transferred intangibles should be allocated to the U.S. parent. The Judgment from the Tax Court: “Respondent’s argument, that petitioner, having originally developed the patents and know-how, is forever required to report the income from those intangibles, is without merit. Respondent ignores the fact that petitioner, as developer and owner of the intangible property, was free to and did transfer the property to the Puerto Ricanaffiliate in 1966.” The Court of Appeals altered the judgement from the Tax Court. According to the Court of Appeals, the parent company had received an arm’s length consideration for the transfer of intangibles in the form of stock in the subsidiary. Hence, the Court disallowed the allocation of ... Continue to full case
France vs. PHARMATIQUE INDUSTRIE, July 1994, CAA, No 92PA01392

France vs. PHARMATIQUE INDUSTRIE, July 1994, CAA, No 92PA01392

The Pharmatique Industrie case shows the high comparability standard required by the courts of France. The tax authorities used five similar products, distributed by three companies operating in the same pharmaceutical sector, as comparables in a transfer pricing dispute. Click here for translation Société Pharmatique Industrie, July 1994, CCA, No 92PA01392 ... Continue to full case