Bermuda is one of six “low tax” jurisdictions with companies working on ten Covid-19 pharmaceuticals.

Bermuda-headquartered Kiniksa Pharmaceuticals is developing the biologic mavrilimumab for Covid-19 and other indications.

Two stem cell therapies from Orbsen Therapeutics (Galway, Ireland) and a vaccine from Cellnutrition Health (Galway, Ireland) are also in development.

Others named include the oncology-focused companies Coherent Biopharma and OnCusp Therapeutics, which are headquartered in the Cayman Islands.

Pharmaceutical Technology has just published a comment from GlobalData Healthcare entitled A cloudy day in paradise for pharma tax havens in Cayman Islands & Bermuda?

The article reports that there is uncertainty as to how the OECD tax harmonisation efforts will affect companies in Bermuda and the other small countries.

Pharmaceutical Technology said the global tax agreement signed by 137 countries — including Bermuda — garnered “mixed views on the extent of the real-world impact for pharma companies headquartered in jurisdictions long considered tax havens.”

The report said: “The OECD deal includes territories like Cayman Islands, Bermuda and Isle of Man, which have very low or zero per cent tax rates, giving a financial incentive for pharma companies to be incorporated there.

“If implemented as intended, a global minimum tax rate would dull the financial benefits to pharma companies being incorporated in these regions.

“However, experts say it remains unclear if these jurisdictions, which have long been considered tax havens, will in fact institute the higher tax rate and whether it will be levied on pharma companies.”

Bermuda, the Cayman Islands and the Isle of Man, it is pointed out, have no corporate tax.

Other signatories include the US, the EU, the UK and Ireland, which could also have implications for pharma given the multinationals incorporated there.

Michael Devereux, director of the Oxford University Centre for Business Taxation, in the UK, said that while the OECD agreement provides a broad outline, it remains to be seen whether all the territories have an incentive to implement the minimum tax rate.

Reuven Avi-Yonah, director, International Tax LLM Program, University of Michigan, was sceptical that all 137 signatories would go ahead with the deal, especially the low-tax jurisdictions.

If the 15 per cent minimum tax rate were to be introduced, the incentive for pharma companies to shift profits to former tax havens is going to be much reduced, Mr Devereux said.

However, those countries could bring in alternative financial incentives to retain pharma companies.

“If you were to be a cynical tax haven, you might bring in a 15 per cent tax rate, but you could give a grant of 15 per cent — for example, to companies employing people in your country — that falls outside the tax rules.

“So you might see regions bring in grants that track the tax they bring in,” said Fintan Clancy, partner at the law firm Arthur Cox.

EU companies are limited by “state aid” rules on non-tax incentives that they can offer. The UK and its territories are not.

“As such, they could offer pharma companies greater R&D and intellectual property (IP) grants and subsidies,” he added.

Intellectual property is an important component of pharma companies’ tax strategies, and one that another section of the OECD agreement seeks to address.

While 0 per cent tax jurisdictions offer no significant research facilities, pharma companies have long found it attractive to transfer patents to such locations.

Even when companies are not headquartered in tax havens, they can still lower their tax bills by moving their patents to these regions. This allows them to pay lower or no tax on royalties obtained on revenues generated from that IP.

Pharma companies have been quite good at divorcing the location where they do R&D and where they have ownership of the resulting products, Mr Devereux said.