Bloomberg Quotes Elizbeth Stevens on Fee Reimbursement
The U.S. entity of a pharmaceutical company must consider several factors to determine how much it is responsible for tax on a reimbursement payment for a fee, including how much it benefits from paying the fee, the IRS said.
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The IRS said the joint and several liability agreement among the drug company’s entities doesn’t mean the payment is necessarily excluded from the U.S. entity’s income. Companies need to analyze how much the branded prescription drug fee payment benefits each party to determine how the expense of the payment should be shared, said Elizabeth Stevens, a Member at Caplin & Drysdale.
The answer can be on a “spectrum” from fully the foreign manufacturer’s expense, to fully the U.S. distributor’s expense, or anywhere between, Stevens said.
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And though it’s not meant to serve as guidance, the memo still gives valuable insight into the way the IRS is thinking about big questions like which entity income or expenses belong to, Stevens said.
Questions about the tax treatment of income or expenses in a situation where parties have joint and several liability arise in other contexts, such as in a settlement following litigation, she said.
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