Life science companies can future-proof their value chain by strategically locating functions, assets and risk in different European countries.
Value chains consist of different value drivers such as R+D, Manufacturing, Centralized Services, Marketing and Sales, Design and Branding or Procurement. Life science companies usually locate these key value drivers across different locations, depending on their operational and tax models. Taxes have traditionally been a significant consideration for life science companies whose assets mainly consist of intellectual property (IP) and brands. Because such intangible assets can be shifted easily from one location to another, they are also instrumental in reducing the global effective tax rate (ETRs) of the companies who own or exploit them.
Locations with the right mix of operational and tax benefits
In order to counter the excessive use of special tax regimes, which often include special tax treatments for income from IP, the OECD has developed a Base Erosion and Profit Shifting (BEPS) action plan designed to reduce the arbitrage between different tax rates and different interpretations of tax principles that arise as a result of tax sovereignty of individual countries. For life science companies, this means that they have to align their operational and their tax planning models in such a way that their value chain is compliant with the new BEPS regulations and offer potential for profitable growth and value creation. In other words, life science companies have to future-proof their value chain by placing functions, assets and risks in locations where they are planning to have their profits taxed. Structures where profit allocations are made in tax-beneficent locations with little or no substance are no longer viable.
This leaves executives of life science companies with the task of finding locations which offer the right mix of operational and tax benefits for certain value drivers. This is particularly challenging in Europe, which, on one hand, is one of the largest market for life science products but on the other hand is also the most rigorous in terms of applying the new BEPS standards.
In need of comprehensive information on locations in Europe
In response to this growing need of life sciences companies for comprehensive and unbiased information on various countries and their ability to host key value drivers, KPMG, in collaboration with Venture Valuation and EuropaBio has published its report “Site Selection for Life Sciences Companies in Europe” for the third time. The new report supports life science companies in smart site selection in Europe, taking into consideration the expansion and redesign of their value chains following the introduction of the new BEPS regulations.
As in the past years, the report offers a comprehensive and unique overview of the various aspects relevant for smart site selection, such as size and specialization of the clusters, business-friendly legislation, macroeconomics and, naturally, the tax system. This combination of operational aspects and tax considerations gives life science companies a first insight how their new or redesigned value chain could look from a location point of view.
Life Sciences clusters in Europe
According to the report, there are basically three types of European countries attractive to locate key value drivers of life science companies
- Countries with strong clusters of life science companies and an attractive tax and business environment
- Countries that have significant clusters of life science companies in their jurisdictions, but lack the benefits of an attractive business environment
- Countries which have attractive business and tax regimes without the support of a strong domestic biopharmaceutical industry
All three types of countries can offer appealing opportunities for hosting certain key value drivers of life science companies.