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New Report On BEPS Project Impact For Life Sciences Companies

by Jason Gorringe,, London

27 October 2014

Multinational life sciences companies should review their organizational structures and perform scenario planning to assess the likely impacts of the Organisation for Economic Co-operation and Development's (OECD's) Action Plan on Base Erosion and Profit Shifting (BEPS), says a new report from KPMG.

"The Post Base Erosion and Profit Shifting World" report looks at the global corporate income tax environment for life sciences multinationals and the impact of BEPS on post-tax profitability. It says national tax policy decisions have a major impact on the competitiveness and market valuation of life sciences companies. There is currently a 27.5 percent spread between the lowest and highest corporate income tax rates in OECD countries, while there is a 24 percent spread in effective corporate income tax rates between the top 20 life sciences companies.

Chris Stirling, UK Head of Life Sciences for KPMG LLP, said: "To ensure continued investment in research and development, life sciences companies need to review their management and exploitation of intellectual property. They need to make sure that the true value generated from each location and activity is fully recognized and remunerated. The proposals could have the potential to significantly impact the bottom line of a large number of life sciences companies."

Stirling said that life science companies should consider four actions to assess the likely impact on their operations of the BEPS project:

  • Review existing transfer pricing policies to assess any potential stress points, and consider how to respond to the new requirements on transfer pricing documentation and country-by-country reporting;
  • Review the use of representative offices and third-party agents to assess future exposure to any future tightening of Permanent Establishment (PE) rules;
  • Assess the relationship between the legal ownership of all intangibles across the business and the activities of development, enhancement, maintenance, protection, and exploitation of the intangibles to ensure that all value-creating functions are correctly rewarded; and
  • Start to assess the importance of data within the value chain, particularly around patient-centric data, and continually monitor the development of OECD proposals on big data.

"The OECD proposals could result in commercial and logistical benefits for life sciences companies that outweigh the need to optimize corporate income tax. Properly planned for, companies could simplify the choice of location for production, distribution, R&D and sales and marketing," Stirling said.

The OECD is expected to release its final Action Plan recommendations in December 2015.

TAGS: environment | Life Sciences | tax | investment | business | intellectual property | multinationals | transfer pricing | tax rates | research and development

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