Cyprus Confidential | Pharmascience avoided millions in taxes thanks to Cyprus and Barbados

The Montreal champion of generic drugs saved millions in taxes, thanks to subsidiaries in Cyprus and Barbados which raked in revenues on three continents.

Information about its subsidiaries offshore come from documents from Cyprus Confidential, a leak of information obtained in particular by the team of German investigative journalists Paper Trail Media. The data was then shared with the International Consortium of Investigative Journalists (ICIJ). The Press and Radio-Canada participated in the investigation which it made possible with 67 other media in 55 countries.

Cyprus Confidential notably includes 424 documents mentioning the pharmaceutical subsidiary in the Mediterranean island, Pharmascience International Limited (PIL), including some of its annual reports, which would otherwise have remained confidential.

There is no indication that there is anything illegal about the corporate structure that Pharmascience operates. The documents unearthed, however, illustrate the tax optimization practices used by many transnational companies.

In Cyprus, PIL can benefit from one of the lowest corporate tax rates in the European Union, at 12.5% ​​of profits, half as much as in Quebec. But above all, the documents show that the Cypriot subsidiary of Pharmascience reduced its taxable profits by paying millions in intellectual property royalties to another subsidiary, in Barbados. In this small island in the Antilles, taxes on corporate profits are even lower, at 2.5% at the time.

At least 17 million transferred to Barbados

The Cyprus Confidential leak contains financial information on PIL for 2014, 2015, 2019, 2020 and 2021. During these five years, 17.2 million in royalties and “supply agreement fees” passed from the Cypriot subsidiary to Pharmascience (Barbados) Limited (PBL).

These transfers in intellectual property royalties allowed the Quebec champion of generic drugs to avoid paying at least $4.6 million in taxes in Canada.

The sums that Pharmascience International Limited (PIL) sent to Barbados were taxed at 2.5%, a rate 10 times lower than in Quebec.

“The objective of this type of international tax planning is to have the intellectual property of the group held in a country where royalties are low taxed, so that the rest of the group in countries with higher taxes reduces its taxable income payment of royalties,” explains Lyne Latulippe, principal researcher at the Research Chair in Taxation and Public Finance at the University of Sherbrooke.

Under the tax treaties that Canada signed with the two islands, the millions of Pharmascience subsidiaries can generally arrive in the country without being taxed, adds Lyne Latulippe.

Our calculations, validated by several tax experts, only concern the five years for which information on royalties paid to Pharmascience (Barbados) is available in the Cyprus Confidential leak. However, Pharmascience operated its subsidiary for 16 years, from 2005 to 2020.

The company did not provide any information on the tax savings its Barbados subsidiary made possible for other years.

Pharmascience neither confirmed nor denied our figures and did not answer any of our specific questions about its tax arrangement and its inter-subsidiary transfers between the Mediterranean island and Barbados.

“In all sincerity, I swear on the heads of my children, I am not aware of this,” said CEO Martin Arès, who took office in January to replace David Goodman, son of founder Morris Goodman. . The Press met him on the sidelines of the announcement about the expansion of the Candiac factory, on October 27, half financed by public funds.

In Cyprus “for its tax regime”

Cyprus Confidential’s data on Pharmascience comes from a leak at Cypcodirect, the administrative services firm responsible for its subsidiary on the island. In a letter to the Cypriot state government in 2011, its officials mentioned the reasons that prompted his client to settle there.

“As part of its international strategy, PIL chose Cyprus for its good infrastructure, qualified personnel and tax regime,” the missive mentions. It aimed to obtain policies favorable to Pharmascience on the drug trade on the island.

The text highlighted the US$4 million in taxes paid to Cyprus since 1994.

That year, Pharmascience created its subsidiary on the island, but also its “business office for Eastern Europe” in Ukraine, according to a corporate document of the company found online, which remains silent on Cyprus.

In an email to The Presscommunications director Valérie Piuze affirms that Pharmascience had to establish itself in the EU in order to be “holder of a marketing authorization for a medicine”.

When Pharmascience moved to the island in 1994, neither Cyprus nor any Eastern European country was a member of the EU.

Its subsidiary on the island, which has “20 to 25 employees”, is dedicated in particular to “operational tasks”, according to CEO Martin Arès. Employees are notably responsible for carrying out certain final quality tests before marketing in Europe.

Today, the revenues of its subsidiary PIL come mainly from sales in Eastern Europe, where it also has a subsidiary in Bulgaria, according to the documents found in the leak. But it also rakes in millions from the Middle East, Africa, Australia and the South Pacific.

Tax competition

“Pharmascience respects all laws, in Canada and internationally,” insists CEO Martin Arès. He adds that the company generates 90% of its turnover in Canada.

The Montreal company is far from being the only company to operate subsidiaries offshore to reduce taxes. But Cyprus Confidential’s documents on Pharmascience allow us to see these classic tax tactics firsthand. “We have the figures in the accounts of a private company, which normally we would not be able to see,” says Geoffrey Loomer, associate professor of taxation at the University of Victoria.

All governments play the game of tax competition, adds Jean-Pierre Vidal, specialist in international taxation at HEC Montréal. “They all think they’re going to come out on top. »

At a press conference on October 27, the Minister of the Economy, Innovation and Energy, Pierre Fitzgibbon, also underlined that the 55 million granted to Pharmascience in public aid “ensure the maintenance of the head office » and the company’s 1,500 jobs in Quebec.

For Professor Vidal, the financial aid granted to businesses follows the same logic as the low tax rates offered by Cyprus and Barbados.

“When you look at it from a global perspective, all these gifts from governments add up and represent crazy amounts of money! he said. And that’s taxpayers’ money. »

With the collaboration of Frédéric Zalac (Radio-Canada) and the International Consortium of Investigative Journalists