Transfer Pricing within the North American Pharmaceutical Industry: Has There Been a Structural Shift in Risk?

International Transfer Pricing Journal, Vol. 1, No. 1, 2006

7 Pages Posted: 13 Oct 2005

See all articles by Jamal Hejazi

Jamal Hejazi

Gowling Lafleur Henderson LLP - Transfer Pricing and Competent Authority

Abstract

Patent protection within the North American pharmaceutical industry has enabled pharmaceutical companies in the past to obtain a degree of exclusivity with respect to a particular market. This exclusivity is needed to provide drug companies with significant profits on winner drugs in order to offset the losses associated with the many failures that occur during the long developmental process. Laws in Canada that are designed to protect intellectual property have not been strong enough and have forced pharmaceutical companies to perform valuable research and development activity in other tax jurisdictions such as the United States.

Within North America, a multinational pharmaceutical company is often structured in such a way that core research and development is performed in the U.S. with the marketing activity being done in Canada. However, changes to laws that seemingly favour generic drug manufacturers, coupled with regulations placed on marketing efforts have seeming shifted the risk towards the research and development effort and away from the marketing activity. This should alter the way tax authorities view the profits associated with the activities of various members of a multinational corporation with marketing receiving more routine returns and the core research and development activity receiving a greater potential for higher profits (and losses) due to increasing risks.

Keywords: Transfer Pricing, Pharmaceutical Industry, North America

JEL Classification: L00

Suggested Citation

Hejazi, Jamal, Transfer Pricing within the North American Pharmaceutical Industry: Has There Been a Structural Shift in Risk?. International Transfer Pricing Journal, Vol. 1, No. 1, 2006, Available at SSRN: https://ssrn.com/abstract=815946

Jamal Hejazi (Contact Author)

Gowling Lafleur Henderson LLP - Transfer Pricing and Competent Authority ( email )

180 Elgin Street
Ottawa, Ontario K1P 1C3
Canada

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