Shire has ‘nothing to hide’ on tax, says chief
Shire’s chief executive has defended the company’s tax arrangements after being identified as one of the beneficiaries of alleged “industrial scale” avoidance orchestrated by PwC, the accountancy group.
Flemming Ornskov said Shire had “nothing to hide” and was “trying to do the right thing” by running the pharmaceuticals company as efficiently as possible to maximise returns for shareholders and increase investment in new medicines.
Shire has been a focus of inquiries by the UK Public Accounts Committee into the use of intra-company loans by PwC clients to shift profits to Luxembourg, where the company paid tax at 0.0156 per cent. Margaret Hodge, chair of the committee, in December labelled Shire’s behaviour “outrageous”.
But Mr Ornskov told the Financial Times in an interview that “four, five hundred companies” were using similar structures in Luxembourg and that they were “fully legal”.
The nature of global pharmaceuticals companies meant their taxes would always be complex, he added, because manufacturing, sales and intellectual property were spread across the world.
“We’re trying to do the right thing for our stakeholders, because in the end, the more we can invest in research and development, the more we can serve the patients because none of the R&D today is easy or inexpensive.”
Shire spent $1.1bn, or 18 per cent of sales, on R&D last year. The company revealed last week that it paid $56.1m in taxes worldwide in 2014 on profits of $3.34bn — representing an average rate of less than 2 per cent.
The figure was unusually low because of one-off benefits — including receipt of a $1.6bn break fee from AbbVie of the US after the collapse of its planned takeover of Shire last year. Shire has been advised that the fee is not taxable, although this has yet to be agreed with tax authorities in Ireland, where the company is based.
Excluding one-off factors, Shire’s tax rate would have been 17 per cent — still significantly lower than those of rivals based in the US, where it sells most of its drugs.
Shire is one of several drugmakers to have shifted its tax domicile to Dublin to benefit from Ireland’s low corporate tax rate. It has been singled out for scrutiny by Ms Hodge’s committee in part because the company was previously based in the UK and remains listed in London.
Mr Ornskov said the UK had become more competitive by lowering its tax rate and creating incentives for investment in R&D since Shire left. But the company had no current plans to move back to the country where it was founded in 1986.
Shire’s priority, he said, was accelerating its transformation from a speciality pharmaceuticals manufacturer — concentrated in treatments for attention deficit hyperactivity disorder — into a more innovative biotech-style drug developer.
The company last month agreed to buy NPS, a US rare disease specialist, for $5.2bn — its biggest acquisition so far. Mr Ornskov said further deals were possible but no longer essential to help reach his target to double annual revenues to $10bn by 2020.