Thursday, February 26, 2015

An Update -- On Gilead's Tax Haven Utilization -- For Its Sovaldi® Juggernaut

Since we have long followed the way Gilead's Sovaldi® has all but crushed the life out of both Vertex's and Merck's last gen Hep C drugs (which were revolutionary in their day), I thought the readership might enjoy an update on how the Sovaldi train is running, ex-US.

Tonight, the Chicago Tribune has a nicely nuanced story -- about how effective Gilead has become, in sheltering its Sovaldi income from US taxation. [It shouldn't entirely escape notice, however, that Gilead's chief competitor here, Abbott Labs, calls the Chicagoland area home -- and so this is a bit of home town boosterism, in a back-handed way. Boosterism, by casting an unflattering light on Gilead's Irish haven operations.] here is a bit of the Trib story -- do read it all:

. . . .The company reported foreign income before taxes of $8.2 billion for 2014, earning more in non-U.S. profits than it recorded in non-U.S. sales. The data released in a securities filing Wednesday suggest that Gilead is taking advantage of U.S. rules that let companies shift valuable intellectual property to low-tax countries, said Robert Willens, an independent tax consultant based in New York.

"Whenever you have huge, very high profit margins and a lot of income as well, it almost always results from the exploitation of intangibles," Willens said in a telephone interview. "It's quite a dramatic increase from one year to the other. That's something you don't see very often. . . ."

When a multi-national company (with dozens of subsidiaries) records more net income -- than sales -- in a given non-US geography, it must mean that the US entities in the chain are paying a hefty patent royalty on each dollar of their own sales, in the US -- to the patent holding company (usually a parent or subsidiary in Ireland, or a Benelux jurisdiction).

This is plainly defensible for truly ground breakingly revolutionary drugs -- the heart of which rely upon extremely valuable inventions, or intellectual property -- usually patented.

So it would seem, as to Gilead. Fascinating, and good tax planning -- sez me.

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