CTM41355 - Particular bodies: Pharmaceutical cases: Background


Manufacturers of medicines, distributors linked to manufacturers, and those researching and developing new medicines, present special tax risks.

  • This is a successful and highly profitable industry.
  • The product is easily transported, and as much of the industry is organised globally, there is a high risk of transfer pricing abuse.
  • The actual cost of manufacturing medicines is small compared with the value of the product, which lies in the intellectual property (patents, trademarks, licences and agreements) resulting from expensive research and development.
  • Tax considerations with industry specific features arise across the sector.  These include
    • transfer pricing and global profit allocation, and
    • R&D tax relief.  For further guidance on this for pharamaceutical companies see CIRD81920.

There is accordingly a need for specialist knowledge of the industry, and for a consistency of approach.  It is important that key sector risks and themes are communicated beyond the specialist pharmaceutical community, so that Customer Compliance Managers and Caseworkers can identify issues.  This can be achieved, for example, through sharing industry knowledge and monitoring known tax risks for wider implications under the guidance of sector teams and subject matter experts.

Where caseworkers identify recurring sector themes, for example, R&D resourcing models involving contract research organisations (CROs) or externally provided workers (EPWs), they should ensure these are shared with the approriate sector team or subject matter expert to support a consistent approach and wider awareness.