An Important Stop on the Way to Market

While many biotech start-ups are struggling to raise capital and begin early trials, there is some light at the end of the tunnel: tax arbitrage opportunities for later-stage companies whose products are just coming to market. As described in “Playing Tax Arbitrage,” an April 11 article in BioCentury, the recent unsolicited offer for Cephalon shined a light on its creative tax arbitrage structure, which allows for a roughly 10% tax rate compared with the approximately 33% tax rate for its would-be acquiror, Valeant Pharmaceuticals International. Cephalon’s structure is relatively simple, with a Canadian parent and its intellectual property held and managed by a Barbados subsidiary, which is afforded a tax rate of zero. As article author Stacy Lawrence points out, the use of the structure is primarily limited to later-stage companies since early-stage companies tend not to have revenue, and thus little use for a tax arbitrage scheme, and more mature companies have already brought their products to market, making transferring the intellectual property to Barbados taxable and tricky under U.S. or Canadian law. So while not for most companies, international tax arbitrage strategies are worth considering before bringing products to market when taxable revenue is expected.

This post on Life Sciences, and Tax was authored by Ryan Sansom.

 
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