Key Pitfalls to avoid for U.S. Biotech Firms when settling in Europe
In this article we would like to share our experiences in the most common and recurring pitfalls that US Biotech companies do when going global and coming to Europe. We will address four key areas: The views expressed in this article are different from the established norms, but we believe they reflect todayâs reality. Because many HQs are now employees-less, resulting in millions paid in unnecessary leasing costs: how many employees work from home, in countries which are thousands of miles away from “the office”? This represents a significant tax risk for companies if your Key Positions do not reflect the reality of your structure. The unprecedented times we live will accelerate policy changes in the way we live, work and get taxed. European Landscape Despite the single market, every EU country has different regulatory requirements and laws. Payer requirements and reference pricing systems also varies from one country to the other. And not to minimize multiple languages and cultural differences. Common pitfall? Do not assume that habits and processes are the same in France and Germany, or Italy and Spain⊠As an example, in some countries you can create a company in as little as 24 hours, and some countries may require 3 months! Implementation Strategy â Which Biotech hub? If the General Manager is the obvious first hire, which position should come next? When should Health Economics and Outcomes Research (HEOR) and Health Technology Assessment (HTA) being considered? Common pitfall? Building solid tools that support decision-making take time and reaching out to Payers requires patience. Itâs never too early to think Market Access. What is the appropriate infrastructure and business process? Looking from the US, the European Biotech âplaces to beâ seems very fragmented! Every country has its own ranking: if Switzerland is the leading country for patents, mostly because of advantageous IP Box fiscal structure, academics cooperation and grants are relatively poor compared to UK and Germany. Spain, Catalonia, is the place to be for Digital Health & Big Data, Biomedical Sciences and Genomics, and offers good access to capital and tax incentives too! Common pitfall? A central HQ is no longer the norm. To take advantage of the many European hubs, think competency centres. Itâs also the most efficient way to build a rich, diverse culture. IP Considerations and Taxes âCost +â is dead. New OECD rules and taking advantage of Biotech Hubs across Europe lead to more complex profit-split and profit-sharing methods in group companies. A balanced Infrastructure designed to maximize your Value Chain and with the appropriate Key Functions are key factors to de-risk inter-company transactions and IP recognition. Common pitfall? Too many companies pay unnecessary taxes because of intercompany transfer pricing. Conducting clinical trials in Europe? Do not underestimate the importance of VAT (Value Added Tax) & Customs compliance. All goods have a customs value and therefore are taxable. Incorrect filing could lead to heavy fines and license bans. In addition, with an average rate of 15% around Europe, recovering VAT could lower your costs. Common pitfall? Do not underestimate the importance of VAT (Value Added Tax) & Customs compliance. Incorrect customs documents can lead to high penalties and dramatic damage to your company reputation vis-Ă -vis of clients. As buyers, or receivers, are ultimately liable for the taxes in cross-border operations. Digitalization : dilemma or paradigm shift? FDA CFR – Title 21, General Data Protection Regulation (GDPR), HIPAA, SOX⊠How to handle (patients) data protection, privacy, in a patchwork of different regimes? Extra-territorial laws impacts can arise depending on where your data is stored. In a world that is interconnected with an increasing need for true collaborative interactions, you must ensure that your Cloud in protected and with efficient compliance programs. Common pitfall? The IT department is often disregarded in strategic decisions about software integration. A global view is necessary to ensure harmonization and interconnection across all companywide systems.
Electronic Invoicing obligations in Europe as of 2023
Italy was the first country to in force B2G (Business to Government) electronic invoicing (e-invoicing) in 2014. Italy was also the pioneer to introduce B2B and B2B in 2019, for almost all Italian companies. Currently, several EU countries have full E-invoicing mandatory only for B2G : Spain, France, Portugal, Croatia, the Czech Republic, Poland, Finland, Norway, Denmark, Sweden, Estonia, Lithuania, the Netherlands, Serbia and Luxembourg (on-going). Austria, Belgium and Germany have partial B2G obligations, mostly because of languages, differences between central and federal states or immediate payments. Italy is currently the only country with compulsory e-invoicing for B2G, B2B and B2C areas. But things are about to change, for 2 reasons: 1) Advantages of e-invoicing and 2) New Policies from the EU. 1) Advantages of e-invoicing 2) New Policies from the EU In 2023, the EU Directive in force the obligation that each invoice issued will have to comply with the regulatory and technological requirement of the Payeeâs country. In other terms, the only possibility to comply is to adopt electronic invoicing. If there are so many advantages to e-invoicing, why so many companies/countries did not adopt it so far? Itâs because of local Policies and because companies are generally lacking expertise in digitalization and underestimate the benefits of e-invoicing. Finally, there is no common technologic solution or platform and countries have been adopting self-standards. However, the use of an ERP could highly facilitate the integration of e-invoicing, with minimum efforts and costs (if you have the good one). To summarize, the adoption of the e-invoicing for B2B transactions will become a must have not only because of Invoicing Policies changes, but also because of increased constraints on digital management of tax compliance adopted by several EU countries, if the organizational benefits did not convince you⊠The table below shows the current situation in the EU big 4, and UK and Switzerland in terms of e-invoicing.
What is transfer pricing ?
This article will provide you with a high-level methodology for the different methods and types of transfer pricing. You will not become a tax expert, but next time you will be asked the question âwhat is your transfer pricing methodâ, you probably wonât respond âCost +â⊠Multinational companies, MNE, used to allocate profits (earnings before interest and taxes – EBIT) among its various subsidiaries, generally in âtax friendlyâ countries to benefit from double non-taxation. However, since the financial crisis in 2008, the G20 countries put tax, specially tax avoidance, on the top of their agenda. In 2012 a plan against Base Erosion and Profit Shifting was elaborated. BEPS was just born. The Article 9 of the OECD Model Tax Convention on Transfer Pricing regulations require transfer prices within a controlled group to meet the armâs length principle. In other words, transactions between related parties must take place under market conditions. The arm’s length principle provides broad parity of tax treatment for members of MNE groups and independent enterprises as it avoids the creation of tax advantages or disadvantages that would otherwise distort the relative competitive positions of either type of entity. There are five different transfer pricing methods in two categories: Regardless of the method, master and local files as well as international comparable transactions are required. The traditional transaction methods, commonly and wrongly called âCost +â, are used for a wide range of operations such as purchase ans sale of commodities (goods), lending money and services. Generally the transactions are straight forward and the margins involved are rather small. Transactional profit methods require a profound analysis of routine and non-routine transactions and the elements of the value chain of the companies involved. It details risks occurred by participant companies and the margins at play are potentially higher. If the latter is more complex, it has a significant benefit for the companies which implement it; tax transparency across several jurisdictions. You can continue reading the chapters below to gain a comprehensive and high-level understanding of transfer pricing. 1. Overview of transactions 2. OECD Transfer Pricing Guidelines & the Armâs Length Principle 3. Functional and risk analysis 4. Transfer pricing analysis 5. When to apply traditional transaction methods? Subject to the guidance in paragraph 2.2 of the OECD Guidelines for selecting the most appropriate transfer pricing method in the circumstances of a particular case, generally it is assumed that: 6. When to apply Transactional profit methods? While in some cases the selection of a method may not be straightforward and more than one method may be initially considered, generally it will be possible to select one method that is apt to provide the best estimation of an armâs length price. However, for difficult cases, where no one approach is conclusive, a flexible approach would allow the evidence of various methods to be used in conjunction. In such cases, an attempt should be made to reach a conclusion consistent with the armâs length principle that is satisfactory from a practical viewpoint to all the parties involved, considering the facts and circumstances of the case, the mix of evidence available, and the relative reliability of the various methods under consideration. TNM method PSM method This method was revised by Action 10 of the action plan against Base Erosion and Profit Shifting (BEPS) in June 2018. PSM may be considered the most appropriate transfer pricing method in a specific set of circumstances only: Besides the constraints already mentioned in the previous paragraph it is also important to indicate when it may not be appropriate to use the PSM: Despite itâs complexity, the PSM is being largely adopted because it enhances tax transparency specially for companies subject to Country-by-country reporting (CbCR) as the tax authorities have a complete view of the routine and non-routine thanks to the analysis of the value chain. As the profits are jointly shared, it is likely to satisfy the tax administrations of the parties involved. Sources: OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ISBN 978-92-64-26512-7 report_on_the_application_of_the_profit_split_method_within_the_eu_en.pdf (europa.eu)
Chaos or Catastrophe? BREXIT Transition ends on 31 December 2020
With less than a month to go (date of writing 1-Dec-2020) until the end of the post-Brexit transition period, there’s still no clarity about exactly how the UK’s borders will operate outside the EU’s economic zone – the single market and the customs union. There is still no trade deal between the UK and the EU and such agreement will take years to be concluded. In the meantime, businesses that trade across the border are extremely concerned as it is likely that widespread disruption will happen as of 1 January 2021. It is one of the reasons of why MHRA has approved the vaccine (link here) as shipments will be authorized as of today (origin Belgium) and thus avoid delays. Because from 1 January 2021, trading, inbounds and outbounds, will face large amounts of new paperwork and checks that includes: In order to limit the disruption of the trade, UK government has decided to postpone customs checks until 1 July 2021 leaving some additional time for companies to prepare. But the scale of complexity due to paperwork cannot be underestimated and it is expected that January 2021 will be a difficult month for customs clearance. We prepared the below document to help you understand the changes that will affect your movement of goods with the UK (England, Scotland and Wales – Northern Ireland is a different category). DOWNLOAD —ïž
Work from home, employers obligations in the EU big 6 and Switzerland
Continuing with our “work from home” series, we would like to share with you in the table below and the file attached our findings about the discrepancies of the work from home laws in the 6 biggest European countries and Switzerland. Do not hesitate to download the table and the references by clicking the file below.
What will impact the CFOs lifes in 2018?
As world is accelerating, every year faster, to more digital and all-service economy, 2018 will be a pivotal year for the finance function. You may have read similar comments in the past years, but you have not seen many changes in the finance functions. You still: Is this your budgeting process? If yes, I am afraid to inform you that you missed the train⊠However, 2018 is the perfect year to catch up. You believe that only âdigital companiesâ are concerned by new laws and directives and as you run a traditional business it does not apply to your company. Once again, I am afraid to inform you that every company is a technology company now. You are not convinced? Please answer the following questions: If you answered âyesâ to any of the questions above it means that your company is a technology company, at least in the opinion of the OECD and your country tax department. Hereafter we will present you what topics we foresee as game changers in 2018, with their risks and opportunities: Cloud Technology savvy people will think that âthe Cloudâ is no longer a disruptive technology. It is a false statement for the finance function. Planning, budgeting and forecasting (PBF) is widely out of scope when companies move to the cloud: only 10-15% of companies have moved PBF to cloud based solutions. The reasons for such a low conversion to the Cloud are numerous but the most common are: Whilst companies which have moved PBF to the cloud report the following benefits: What are the risks if your company does not migrate the PBF (and other functions) to cloud based solutions: To summarize, the first step in modernizing the finance function is to move the operations to the cloud but make sure you implement the adequate processes, rather than copy/paste your current processes. Blockchain Blockchain is the foundation of crypto-currencies such as the Bitcoin. The Wikipedia definition of blockchain: âit is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data.â We often read terms such as âthe supply chain blockchainâ or the âfinance blockchainâ. In fact, Supply Chain and Finance are blocks linked to the same list of records. To summarize, blockchain is your product/service/transaction DNA, or genetic code. Why should CFOs consider adopting blockchain technologies? In addition to the business and finance partners pressure, the benefits of adopting the blockchain technology are: Of course, adopting such an early technology has it risks, and pursuing a full integration of blockchain could be very expensive to early adopters: To summarize, auditors perceive the blockchain ledgers to have the potential to solve the problems associated with standardisation, reliability and compliance. The fact that blockchain has received the confidence of all major financial institutions (banks, insurances, VCs) may force corporations in the need of funding to adopt it. In our opinion, it is difficult to predict exactly how huge the impact of the blockchain will be on the finance function. Artificial Intelligence (AI) AI and blockchain are inseparable. However, unlike blockchain, AI is perceived as a threat to the finance function: Natural language processing (NLP) and Robotic process automation (RPA) are concepts which are already being tested by Big4 companies. Big4 are already playing the game of men versus machines. RPA technology is being compared and benchmarked versus human brains. They use comparative methods to fine tune machines conclusions using human thinking. In the meantime, NLP is used to fill in hundreds of thousands of standard documents such as leasing contracts. Contracts are reviewed by real persons using the same sample criteria as any financial audit. Big4 companies can afford the luxury to test and roll out these technologies while having clients paying them for what is a massive UAT (user acceptance testing). In the short term (1-2 years), we do not recommend to CFOs to go on the direction of AI. We would rather recommend investing in cloud and blockchain solutions. ROI to implement AI technologies could be fast, but only for companies treating huge amount of transactions in millions. In the mid-term (3-5 years) we believe that AI technologies will play a significant role in fraud detection: if audits used to be based on samples, AI technologies will be able to review entire blocks of data downstream and upstream. As an example, AI technologies will recognize a fraudulent payment to a party under Anti-bribery and/or FCPA regulations. In addition, travel expenses will no more be a hassle for the accounting teams: NLP technologies will be able to code and process any expense claim, in line with the company travel policy with milliseconds! Our conclusion about AI is that it will simplify the world of finance and translate complex transactions into comprehensive steps. We donât see AI as a threat to the finance function but as a perfect tool to support decision making by providing unquestionable proof of concept. Stay tuned for the next article. About the author: Rui M. Teixeira is a finance professional with over 20 yearsâ experience including 10 as independent management Consultant. The objectives of his articles are to share his professional experiences and feelings about the professional world. Disclaimer Unlike Big4, large consultancy firms and the EU Commission, our company does not have dedicated resources to research and investigate about the current trends which impact the world of business. You will understand that we do not openly share our sources. However, if there is a piece of information for which you would like to see the source/reference or to further discuss it, please do not hesitate to contact us specifying what paragraph you are looking for.
« The system is not working ». The rise of Blockchain and Artificial Intelligence (AI) in finance future
âThe system is not working!â Who as a finance leader never heard this feedback as one of the reasons why, as usual, closing the books is going to be late? One entity provides late financial information and the entire group face the risk to miss the deadline. Then days later while reviewing the numbers with your teams, and after several hours of video-conferencing, you conclude that some entities report different numbers (in same GAAP ledgers), and you wonder why the visual dashboards shown are different across entities? It is now D+20 and your company books do not look straight, forecasts are not aligned. Another rough time ahead on explaining why the finance department is always late⊠You think âWhy this keep on happening?â You were told to move to the Cloud and you did. You were informed your teams required training and you provided it. You were advised many things, spent a good amount of money but the results do not meet your expectations. You google some key words and you read âblockchainâ âAIâ and you feel somewhat dizzy because you realize it is about to become more complex and that lots of challenges are ahead of you. One of my ex co-workers and friend wrote this excellent article about Data Science and Machine Learning. You may look at it as I believe it is useful to acquire some basics (https://www.linkedin.com/pulse/5-quick-answers-data-science-machine-learning-questions-rameen-rahman/). Moving to the Cloud seemed like a major accomplishment but it is of no use if you replicated the processes you used before. Indeed, the future is not on how your reports will look like. The future is about what data you will feed in these reports (well, as it has always been I would say). âCrap in, crap outâ is a well-known expression in the consulting world and the data is one of the keys for the future of efficient and effective reporting. More than ever. Why? Firstly, commercially, to align with the market(s). Information about customers, clients, patients, users is essential (this you know). Secondly, the pressure of governments and authorities (financial, regulatory) who are now very sharp in using cross-referencing technologies (and this one you probably ignored). Regardless of how fancy the technology you use (even if some reporting tools are very cool to work with â they call them playbooks!), if your data is not well structured, collected, updated and understood across all functions in your company, even artificial intelligence wonât support you. When I explain Blockchain and AI I use the following : Blockchain : it is the DNA. The DNA code tells everything about a person. Not only about an arm, a leg or an eye. It is the same for companies. AI : it is a child made with the DNA. It will require support and education to mature. It will fly with its own wings, but you require a captain and a crew to maintain the direction. Unlike for the year 2000 bug (Y2K), there is no hard deadline to adopt Blockchain and AI (well lets says predictive analysis). But denying their benefits and obligations would be a terrible mistake which companies would correct at big costs (using the same Big 4 and IT companies who made a lot of good money for Y2K). My advice is: 1) Do not feel alone. A large majority (70% or more) of the CFOs do not understand blockchain, AI, etc. and are not ready to move in that direction. 2) There is no rush for adoption. Donât be an early adopter who will fail for others to have success. 3) Design well your plan and follow a rigorous project methodology. Integrate step by step the concepts but keep in mind we are in the era of V4 (and not 4.0 as I was told) and new technologies may influence your original plan. 4) Donât be wowed by the names of the companies advertising that if you donât have it now, you will fail. That is not true. Think about electronic signature in 1998-2000 (which is my best example): pen business is still performing very well in 2017! 5) It is not that complex! And do not hesitate to ask questions and of course like and share this article! Thanks for your time! Rui
