Clark Armitage Comments on Transfer Pricing Issues with Pharma Pricing Order in Bloomberg Law

President Donald Trump’s executive order pressuring pharmaceutical companies to drop US medicine prices poses a fresh set of transfer pricing issues, adding to a growing list from reciprocal tariffs and an ongoing investigation onto additional tariffs aimed at the industry.

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“To the extent transfer pricing is based on the relative profitability of U.S. sales, pricing likely will need to be adjusted, if it can be,” Clark Armitage, Caplin & Drysdale Member, said in an email.

Companies also have to watch the behavior of unrelated entities, which tax authorities may try to rely on to show whether multinationals truly are operating at arm’s length, as required by transfer pricing rules. Intercompany transactions must be priced comparably to similar transactions between unrelated companies.

“The IRS might argue that, if unrelated-party contracts have ‘out’ clauses, it would be arm’s length (or a realistic alternative) for intercompany agreements also to have such clauses,” Armitage wrote. “My sense is that most intercompany agreements will say nothing about the possibility of price caps and, depending on the situation, this could prove challenging for some companies.”

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