John and Greg, both US citizens, own Mercury Pharmaceuticals Inc., a USbased biotechnology company specializing in developing drug therapies to treat arthritis. After consulting with industry experts, they estimate the value of their therapy to be at least $ million. They believe they can sell the treatment to individuals for $ annually in the United States, the United Kingdom, and Australia.
John and Greg would have engaged your services to determine the tax consequences of each potential avenue with the drug therapy, including:
Capitalizing a business, manufacturing the drug, and selling to individuals
Licensing the drug therapy to a manufacturer in exchange for an upfront fee commensurate with the value of the drug estimated to be $ million and a royalty of of gross revenues associated with the therapy
Selling the patent to another business to manufacture for $ million.
They've asked you for technical advice on sourcing the income in each scenario and calculating any tax credits. Additionally, since Greg is the beneficiary of a large trust, he is very interested in the tax implications of setting up a multinational business, starting with a corporation in the United States. Specifically, he has asked your team to answer the following questions:
How should he structure the business to optimize for tax purposes while ensuring the company can properly deliver the drugs?
He's heard that companies can "shift profits" and would like to better understand that strategy, including how any moves will survive IRS scrutiny.
Overall, he wants to grow any created business quickly and conserve as much capital as possible.
