Multinational life sciences companies need to prepare for new tax regulations, finds KPMG report

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 the post-tax profitability.

“To ensure continued investment in research and development, life sciences companies need to review their management and exploitation of intellectual property” says Chris Stirling, UK Head of Life Sciences for KPMG LLP.

“They need to make sure that the true value generated from each location and activity is fully recognised and remunerated. The proposals could have the potential to significantly impact the bottom line of a large number of life sciences companies.”

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.

According to Stirling, life science companies should consider four basic actions to assess the likely impacts of the BEPS work-streams:

• Review their existing transfer pricing policies to assess any potential stress points if the OECD recommendations within the BEPS framework become policy. Start assessing how they will cope with the requirements under transfer pricing documentation and country by country reporting.

• Review the use of representative offices and third party agents to assess future exposure to PE if the PE exemptions are tightened.

• 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 that all value creating functions are correctly rewarded.

• Start to assess the importance of data within the value chain particularly around patient centric data and monitor continually as the OECD develops its thinking around big data and the value this drives within the business.

Looking ahead Stirling concludes: “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, RD and sales and marketing.”

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