Shire touts R&D benefits in defense of tax model

Shire ($SHPG) CEO Flemming Ornskov has come out fighting against vocal critics of the company's tax model. As Ornskov sees it, Shire's tax structure is fully legal, similar to the model used by around 500 companies and beneficial to patients.

Shire CEO Flemming Ornskov

Others see things a little differently. United Kingdom politician Margaret Hodge has called Shire's tax model "outrageous" and made the company the focus of a probe into the use of intracompany loans to move profits to Luxembourg. Shire paid tax in Luxembourg at 0.0156% and its overall rate is 17%, well below the proportion paid by many of its peers. Hodge sees this as depriving the public purse of money to which it is entitled. Ornskov sees it a way to enable Shire to spend 18% of sales on R&D.

"We're trying to do the right thing for our stakeholders, because in the end, the more we can invest in research and development, the more we can serve the patients because none of the R&D today is easy or inexpensive," Ornskov told The Financial Times. Ornskov thinks up to 500 companies are using similar Luxembourg-based tax structures to Shire, but the drug developer has nonetheless become a focal point for U.K. critics.

Shire's historic and current links to the U.K.--and the high profile of the aborted AbbVie ($ABBV) deal--have made it a target for politicians who are trying to get a handle on global tax avoidance. The inherent complexity of global biopharma companies and difficulty of taking national-level tax actions against multinational businesses are working against politicians, though.

- read the FT article

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