AstraZeneca's UK tax deal leaves many questions unanswered, says FT

Anglo-Swedish drug major AstraZeneca's £505 million ($779 million) settlement over a long-standing drug transfer pricing issue may have got the UK's HM Revenue & Customs off its back , but it gives little insight to others as to the thinking of the British tax authority (The Pharma Letter February 23).

Transfer pricing has been a bone of contention for many drugmakers for decades, and AstraZeneca, headquartered in the UK, has been arguing with the tax authorities for about 15 years over how it allocates taxable profits between different parts of the business, notably its operations in Puerto Rico. A legal precedent would have offered some useful clues as to how HMRC might treat such transactions when they involve high-value intangible assets, such as drug patents, commented Lombard columnist Andrew Hill in the Financial Times yesterday. However, over the years of feuding, much has changed. 'That probably would have made it hard to draw broad conclusions,' he noted.

Multinationals now want to supply developing markets directly. They have to put operational substance above tax planning when deciding where to allocate resources. Their host countries in such markets are better able to serve and staff them. So naturally, the same countries' tax authorities are eager to take a larger slice of the revenue. India, China and Brazil have all tightened their grip on transfer pricing recently. Meanwhile, cash-strapped developed countries, such as the USA or UK, must close tax loopholes and are sharing information to cut short long-running and costly disputes such as the one with AstraZeneca, said Mr Hill.