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Drug companies to be hit by rising tax rates: report
by Matthew Dennis, December 01, 2009,
According to a report published Tuesday by PricewaterhouseCoopers (PwC), pharmaceutical companies will face higher tax rates as a result of changing business models and as governments aim to restrict companies' strategies to minimise tax liabilities. "For the past 20 years, pharma has benefited from a benign legislative and commercial environment that has enabled it to report low and stable tax rates," the report noted, adding that "these elements are changing."
The report noted a wide variation in corporation tax rates, with Bayer and GlaxoSmithKline having the highest rates over the last five years at 29.3 percent for each, while the lowest rates were recorded for Novartis at 14.4 percent, and sanofi-aventis at 15.9 percent. Findings also showed that drugmakers in the US, including biotechnology companies, were found to be among the lowest taxed corporate sectors at an average rate of 32.5 percent last year. Among large companies, the average rate was 23.8 percent.
PwC stated that the pharmaceutical sector's pattern of cost cutting, expansion in emerging markets, a broader mix of products, improved research productivity, and offering "outcomes" rather than just medicines, will all have "major repercussions." In addition, the report warns that transfer pricing practices, which involve shifting costs to higher tax regions and shifting income to lower tax regions, are facing increased scrutiny by tax authorities. The authorities are reportedly working with their counterparts in other countries to restrict the use of crossborder transactions.
PwC suggested that tax bills in the future could potentially be minimised by managing value-added tax centrally, by companies shifting their legal status from corporations to partnerships, and by creating regional hubs.
Reference Articles
Drugs groups face increase in tax rates - (Financial Times)
Pharma industry faces rising tax burden, PwC says - (Forexyard)
Pharma 2020: Taxing times ahead - (PricewaterhouseCoopers)
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