Introduction

doi:10.1017/CBO9781139208123.002

1 - Introduction

from Part I - The context of transfer pricing disputes

Published online by Cambridge University Press: 05 November 2014

Ian Roxan

Edited by

Eduardo Baistrocchi and

Ian Roxan

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Eduardo Baistrocchi: Affiliation:
London School of Economics and Political Science
Ian Roxan: Affiliation:
London School of Economics and Political Science

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Summary

A transfer pricing dispute

Pharmaceutical companies need to have a continuing supply of good research developments to maintain their future profits. Their ability to profit from this research depends on exploiting patents based on the results of the research, but patents expire after a number of years, allowing other companies to compete with the developer, and some drugs are simply superseded by later developments.

In the 1960s, one major US pharmaceutical company had developed a number of valuable patents. The company naturally wanted to limit the amount of tax it would have to pay to exploit these patents. So in 1965 it established a subsidiary in Puerto Rico (a United States' dependency). At the time, US tax law permitted the transfer of patents to a Puerto Rican subsidiary tax free, and Puerto Rico offered tax haven treatment on the returns from exploiting the patents. The US parent therefore transferred the patents to the subsidiary without receiving any payment or royalties in return. The subsidiary relied on the patents in manufacturing the drugs they covered, and sold the products to the US parent.

Type: Chapter
Information: Resolving Transfer Pricing Disputes
A Global Analysis
, pp. 3 - 9

DOI: https://doi.org/10.1017/CBO9781139208123.002 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2012

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References

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (Paris: OECD Publishing, 2010)

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Book contents

1 - Introduction

Summary

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References

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