Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
By Ben Stupples
Drugmakers have been hit worst among Europe’s largest economies from a one-off U.S. levy on corporations’ overseas earnings, a result of the deal-making boom in the pharmaceutical sector.
Sanofi, Shire Plc, and GlaxoSmithKline Plc make up 80 percent of the $2.4 billion in repatriation charges faced by businesses on the primary stock exchanges of Europe’s Group of Seven countries. Paris-based Sanofi and London-based GSK have the two largest bills out of this total, respectively paying $1.3 billion and $484 million. Dublin-headquartered Shire Plc faces a bill of $90 million, the fourth-largest overall.
The figures are based on an analysis of corporate filings by Bloomberg Tax. The one-time repatriation levy places a 15.5 percent tax on cash and an 8 percent tax on assets. It was included in the 2017 U.S. tax act ( Pub. L. No. 115-97). The impact of the repatriation levy on non-U.S. multinationals highlights the global impact of the tax changes.
Foreign pharmaceutical companies’ growth plans are the reason why the repatriation tax hits them most, said Benjamin Proce, a U.S.-based partner and life and sciences tax leader at PwC.
“The pharma sector has particular seen a lot of deal activity in the past 10 years, with U.S.-based companies with foreign subsidiaries acquired by overseas businesses,” he told Bloomberg Tax.
“The repatriation tax is impacting tech and pharma companies most,” he said. “By and large, U.S. tech businesses are home-grown. There’s a lot more cross-border activity in the pharma sector.”
The repatriation tax targets the foreign profits that U.S. multinational companies like Apple Inc. and Microsoft Corp. stockpiled overseas to avoid domestic corporate taxes. In February, the United Nations said in a special report that the new U.S. law may lead to the repatriation of as much as $2 trillion.
Since President Trump signed the 2017 U.S. tax act into law in December, 11 businesses listed on the primary stock exchanges of the U.K., France, Germany, and Italy have said how much they will pay in repatriation charges. The average is $22 million, according to data compiled by Bloomberg Tax.
London-based EY partner and international tax services leader Matthew Mealey previously told Bloomberg Tax that any non-U.S. businesses facing the charge has a “sandwich” structure.
In these cross-border set-ups, the companies’ U.S. subsidiaries are positioned between a foreign parent business, such as Sanofi, and a U.S.-controlled foreign subsidiary with offshore profits.
Sandwich structures are more common among large drug-makers due to the pharmaceutical sector’s past decade of deal-making, Proce said. The industry has been “consistently global,” he said.
The U.S. is a key region for drug-makers. The country is the world’s largest biopharmaceuticals market, according to SelectUSA, the U.S. government’s program to attract foreign investment.
Between them, Sanofi, Shire, and GSK have consistently acquired U.S. pharmaceutical businesses.
Shire’s $32 billion takeover of Chicago-based Baxalta Inc., completed in June 2016, made it the world’s biggest maker of drugs for rare diseases. Seven years before, GSK completed a $3.6 billion acquisition of Research Triangle Park, N.C.-based Stiefel Laboratories. Most recently, Sanofi announced in January that it would buy out Waltham, Mass.-based Bioverativ Inc. for $11.6 billion in an all-cash deal.None of the companies’ press offices responded to Bloomberg Tax’s requests for comment.
Sodexo SA, the French food services and facilities management company, has given an insight into how a foreign multinational business may end up facing a U.S. repatriation tax charge.
The Paris-based company had a charge because of dividends in an Canadian entity that Sodexo controlled via a U.S. subsidiary, Chief Financial Officer Marc Rolland said in a Jan. 11 sales results call.
Sodexo “had left the dividend in Canada. So now, we will have to pay the tax on those dividends,” Rolland said. The charge is 23 million euros ($28 million), he said in an April 12 earnings call.
Companies can spread repatriation tax payments over eight years. The bulk of the payment is due, though, towards the end of the period. According to the company’s Feb. 27 full-year results, GSK will pay 60 percent of its 348 million-pound ($496 million) charge between the sixth and eighth year.
Bloomberg Intelligence government analysts Andrew Silverman and James Blatchford wrote in a Jan. 11 post on U.S. tax reform that companies may feel the effect of the repatriation levy from 2023.
Yet as companies can bring back the money to the U.S. and reinvest it in the country, PwC’s Proce said the financial benefits arising from repatriating the overseas earnings may assist with the levy.
“It’s a subtle incentive: If companies invest the overseas earnings in the U.S., the returns could pay for the tax,” he said. The charge “gives companies access to capital over a number of years.”
To contact the reporter on this story: Ben Stupples in London at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)