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FOCUS 9
SUMMARY POINTS
National tax policy decisions are having a major impact on the competitiveness and market valuation of life sciences businesses, which is why so many companies have structured themselves to take advantage of the lower tax rates offered by many jurisdictions.
These structures are often criticised in the public arena. In response to this pressure the G20 has tasked the OECD to consider the issue of Base Erosion and Profi t Shifting (BEPS).
The OECD has responded with a 15 point action plan which aims to explore the issues and produce fi nal recommendations by December 2015.
Some of the proposals could signifi cantly impact the post-tax profi tability of life sciences companies, which may alter funds available to invest in essential research and development (R&D).
Businesses need to review their current operations to ensure that the true value generated from each location and activity is fully recognised and remunerated.
The four major impacts on life sciences companies: IMPACT 1:
Life sciences companies which rely on the use of representative offi ces or third parties as their in-country representative may have to adapt their structure if the OECD recommends a change to the exemptions surrounding the creation of a permanent establishment.
IMPACT 2:
It may be necessary to demonstrate a stronger association between the owner of an intangible asset and any activity which has a material effect on the value of that intangible. In theory, activities including (but not limited to) the control of budgets, the control of strategic decisions and the control of research programmes may need to be linked to the place of ownership of the intangible.
IMPACT 3:
The need for more transparency in transfer pricing documentation and the request for country-by-country reporting may result in more tax audits and potential disputes over where profi t should be allocated for tax purposes.
IMPACT 4:
The collection and use of structured and unstructured patient data may begin to constitute an intrinsic value generating intellectual property in the country in which it is collected. This may result in a taxable nexus.
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BEPS
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