The drugs don’t work for tax havens any more

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Pharma industry faces rising tax burden, PwC says | Markets | Europe | Reuters .

On top of patent expiries and healthcare reform, drugmakers have something else to worry about -- rising tax bills.

The effective tax rate for the pharmaceutical industry is set to increase as its business model changes and governments take an increasingly tough line on tax-reduction strategies, consultancy PricewaterhouseCoopers (PwC) said on Tuesday.

For the past 20 years Big Pharma has enjoyed a benign legislative and commercial environment that has enabled it to report low and stable tax rates, averaging just 23.8 percent across a sample of 12 global companies monitored by PwC.

But the sector's current low level of taxation, which is less than is paid by most other industry sectors, now looks set to rise, PwC believes.

Why?

The global recession has made tax authorities around the world hungry for new revenue sources and governments are restricting the use of tax havens that allow multinationals, including drug companies, to move profits offshore.

Transfer pricing practices, which are often used to minimise tax liabilities, are receiving increased attention as authorities seek to limit any abuse of intra-company transfers of expenses or profits.

Which is absolutely the right direction of travel.

In many places in the world drug companies are effectively state funded: the UK is a good example. That is the most efficient model of health care supply measured by outcomes. Yet they have abused those states.

And no drug of note has ever, to my knowledge, been developed in a tax haven where the intellectual property rights to so many drugs are owned for the sole purpose of abusing tax.

So this attack on their abuse is overdue. I welcome it.