New Irish Tax Rules Won’t Faze Biotech: Analyst

Published: Oct 14, 2014

New Irish Tax Rules Won’t Faze Biotech: Analyst

October 14, 2014

By Riley McDermid, Breaking News Sr. Editor

New rules from the Irish government that will end lucrative tax breaks for foreign companies domiciled in the country are unlikely to affect several major biotech firms, well-known analyst Mark Schoenebaum of ISI Group said Tuesday.

“Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries,” Michael Noonan, Ireland’s finance minister, told the Irish Parliament on Tuesday.

The biotech industry has come under fire from U.S. regulators in recent months for their usage of “inversion” tax rules, including the “double Irish” provision outlawed today. More than 1,000 multinationals employ over 166,000 people in Ireland and American biotechs are a good portion of that group.

A “double Irish” tax move lets corporations with operations in Ireland send their royalty payments to a separate Irish-registered subsidiary. Though that subsidiary is incorporated in Ireland, typically has its tax home in a country with no corporate income tax.

Biotechs that have taken advantage, or are currently processing acquisitions to take advantage, of the rule include Gilead Sciences, Inc. , Eli Lilly and Company , Pfizer Inc. , AbbVie , Medtronic, Inc. and Horizon Pharma .

Irish authorities said Tuesday that they’ve heard the displeasure about this arrangement from fellow global regulatory bodies and will be making moves to close the loophole, with a phase-in implementation lasting until 2020.

But many are unlikely to be touched by new Irish regulations, wrote Schoenebaum in a note to investors.

“Gilead: Too early for them to comment, but believe the grandfather provision will buy them some time. Celgene: Effective tax rate is driven more by our agreements in Switzerland and not Ireland,” he said. “Eli Lilly has operations in Ireland and they will evaluate the potential impact should tax laws change.”

Medtronic’s $43 billion acquisition of Ireland-based Covidien is unlikely to be scuttled, said Deutsche Bank analysts but it could limit the company’s access to its $13 billion of cash currently held outside the U.S.

Many domestic companies have been seeking inversions via subsidiaries purchased in a flurry of M&A deals lately, but pharmaceutical and biotech firms have been by far the most active. The Irish government now hopes to reap some of those gains.

“I am abolishing the ability of companies to use the ‘double Irish’ by changing our residency rules to require all companies registered in Ireland to also be tax resident,” he added in a budget speech.

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