Oxfam report on the tax affairs of multinational drug companies labelled misleading by Inland Revenue

The Oxfam report claiming pharmaceutical companies in New Zealand are underpaying tax by some $21 million completely misrepresents the situation here, says Inland Revenue international strategy manager, John Nash.

“Obviously we can’t comment on specific taxpayers but taking a global profitability figure and applying it across the board, as this report does, cannot illustrate what’s really happening in this country,” he said.

“The report tries to apply a globally derived profit margin figure of 15-16% to New Zealand drug company revenue of $519m and concludes that they have underpaid tax by $21 million. This is clearly incorrect given the type of operations that multinational pharmaceutical companies actually undertake in New Zealand,” said Mr Nash.

He said the Oxfam methodology applied a global average profit margin to the New Zealand operations of pharmaceutical companies while at the same time acknowledging that profit margins were not uniform all over the world.

“The main driver of profitability in this industry is the creation and development of intellectual property but such activities are not generally carried out in New Zealand.

“It’s important to examine what multinationals actually do in a specific country such as New Zealand and how value is added, before arriving at a conclusion that insufficient taxation has been paid. The New Zealand operations of pharmaceutical companies are almost entirely lower margin activities like distribution.

“We also have a very active regulator in Pharmac, which impacts the profitability of pharmaceutical companies here.”

Mr Nash said Inland Revenue is working closely with multinationals of all kinds operating in New Zealand to ensure compliance as well as working with the OECD in the collective effort to improve compliance by multinationals worldwide.

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