Pharma & Life Sciences Get Together€¦ · PwC Digitalization in the Pharma & Life Sciences area...

Pharma & Life Sciences Get Together

26 April 2018

Introduction

PwC

Your contacts

Dr. Sandra Ragaz

Director - Leader Pharma & Life Science VAT Switzerland

PricewaterhouseCoopers AG, Zurich SwitzerlandPhone: +41 58 792 44 69E-mail: [email protected]

Simeon L. Probst

Partner – Customs, Trade and Indirect Taxes

PricewaterhouseCoopers AG, Basel SwitzerlandPhone: +41 58 792 53 51E-mail: [email protected]

Daniela Heim

Senior Manager – Indirect Taxes


Cristian Manganiello

Partner Risk Assurance


Claire Manders Avanzini

Director – Corporate Tax


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April 2018Pharma & Life Sciences Get Together

PwC

1.

The tax world in movement –Updates from the Swiss Tax Proposal 17 and the US Tax Reform

2.

Agenda

Data Privacy –How to master the challenges of data privacy in a connected world

3.

Digitalization in the Pharma & Life Sciences area –Are you prepared for the VAT, Regulatory and Digital changes of today, tomorrow and the day after tomorrow?

4


1 Digitalization in the Pharma & Life Sciences area

PwC

Digitalization in the Pharma & Life Sciences area

“FDA approves first digital pill” The Mind unleashed 15 November 2017

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Digitalisation of EU indirect tax authorities - changing compliance landscape

Digitisation some examples:

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Impact on digitalisation on indirect taxes and regulatory

Are you ready for transparency?

Governance

Policy, procedures and guidelines

Or

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, r

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, ca

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, to

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Risk Management for clinic and commercial

Tax & Regulatory Strategy

Reporting

Compliance

Operation tasks: supply chain, clinical trials etc.

Audit and other enquires

Accounting

Planning

Digitalization

Tax authorities

Digitalization

Health authorities

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PwC 9


Ada - Machine Learning process end to end

Review of the

outcome by a

specialist to

identify anomalies

and false positives

Outcome with

anom alous

transaction

Full data set check

against the

confirmed rules

Rules review by

specialistRules engine run

Data Extraction

and Load

• Master data• Transactional data

Machine Learning tool identifies rules

Specialist reviews the rules created by Machine Learning and validates or invalidates each rule

Full data set is screened against the confirmed rules

Machine Learningcreates an outcome with transactions that do not follow valid rules

Specialist confirms the findings or identifies false positives (using additional parameters of the transaction is necessary)

New rules identification

Initial Phase Operational Phase

New rules are added to list of validated Machine Learning rules to reflect changes in business and law

Combining PwC Machine Learning and specialized expertise generates company-wide valid determination rules without data size limitations

Excursus: Ada - Machine Learning process end to end

PwC


Typical Challenges of Pharma & Life Sciences Entities

• No cost transparency• Unclear overview of duty and tax

savings• High risk of financial penalties due to

misconducts

• Lack of dedicated trade compliance organization

• Lack of technical knowledge• Unclear responsibilities• Lack of skills

• Fragmented trade processes• No end-to-end trade integration• Lack of process ownership• Missing key activities reg. Trade and

Customs

• Heterogeneous IT solutions• No global IT strategy• Low level of integration• Missing or wrong key data• Lack of automation

• Lack of big picture reg. Trade and Customs

• Contradictory strategic objectives• No enforcement of Trade regulations

Companies need a

solution

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PwC


Trade Automation ERP solutions (e.g. SAP GTS)– functional overview

Customs Management

Compliance Management

PreferenceManagement

Electronic Compliance Reporting

Functionalities:• Customs processing

Import/Export• Transport/

presentation of customs

• Excise duty controlKey Benefits:• Increase process

automation and efficiency

• Streamline customs clearance processes

• Enable cost and

process transparency

Functionalities:• Sanctioned party list

screening• Legal control Export/

Import• Embargo

Key Benefits:• Ensure transactional

checks against trade sanctions programs

• Avoid costly and brand detrimental penalties

Functionalities:• Preference processing• Export refund• Letter of Credit

processing

Key Benefits:• Leverage preferential

origin as competitive argument

• Ensure fulfillment of complex origin criteria

Functionalities:• INTRASTAT

Key Benefits:• Integrate intra-

European reporting requirements

• Paperless communication with the authorities

Cross-area functionalities:• Master data management (business partners, products)• Classification (Export Control, Customs…)Key Benefits:• Solution and information transparency• Global master data repository• Confidence for upcoming audits, solution auditability

• Cross-area data and information interchange• Reporting for governance purposes

• Consistency between technology and legal requirements• Global, homogeneous, and harmonized SAP solution

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2 Updates from the Swiss Tax Proposal 17 and the US Tax Reform

PwC

1. Swiss Tax Proposal

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Updates from the Swiss Tax Proposal and the US Tax Reform

Mandatory cantonal Patent Boxaccording to OECD-standard

Increase of partial taxation of private dividend income

Federation: 70%

Cantons min. 70%

Increase of cantonal share indirect federal tax revenues

from 17% to 20.5%21.2%

Basis: Legal certainty & investment security

Optional cantonal R&D super-deduction (max. 50%)

Increase of children and educationallowances

by CHF 30

Maximum limitation of reliefs of max. 70%

Separate taxation of formerly tax free hidden reserves (during 5 year transition period)

Current cantonal step-up practice and tax effective depreciation of hidden reserves (max. 10 years; DTA)

Adaption of cantonal capital tax basefor parti-cipations and patents

Abolition of tax regimes (holding, mixed, domiciliary, principal and finance branch regimes)

Tax Proposal 17

Cantonal rate reductions

No longer included:

NID

Abolition of issuance stamp tax

Deferred:

Lobbying to reintroduce at cantonal level

Overview of the TP 17 measures as per consultation draft

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Timeline/political agenda

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2. US Tax Reform

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Where are we?

SEC guidance Granted

December 22, 2017

Tax reform bill signed

Enacted December 22,

2017

Treasury guidance

Started

December 29, 2017

Tax effects of changes in tax laws or rates should be recognised in theperiod in which the law issubstantively enacted / enacted

Mixed practice of reporting under IFRS with effects reportedeither as part of tax expense or benefit in underlying or non-underlying – depends on policy, facts and circumstances. Disclosure is key.

✔ ✔ ✔

SEC Guidance provided but no similar view from

European regulators yet...

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US Tax Reform Implications?

Corporate Tax

Transfer-pricing

Tax Accounting

Treasury

Value chain

Investment decisions

Tax Compliance

Group Tax RateUS Tax Reform

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Key Corporate Tax Provisions (1/2)

New tax code permanently reduces the corporate rate to 21% for tax years beginning after 2017. Corporate Alternative Minimum Tax (AMT) is eliminated. Refunds available for AMT credit carry forwards. ETR

Interest deduction is limited to the sum of business interest income plus 30% of the “adjusted taxable income” (EBITDA for taxable years up to 2021, EBIT (i.e. more restrictive limitation) for taxable years beginning after December 31, 2021. Interest

Cost recovery (full expensing)100% full expensing for investments in new and used property made after Sept. 27, 2017 and before January 1, 2023. Five-year phase down of full expensing beginning in 2023. For tax years after 2021, expensing of R&E expenditures, including software development costs is repealed and requires capitalization and amortization over 5 year period (R&E expenses attributed to research conducted outside the US capitalized and amortized over 15 years).

Expensing

Utilization of NOLs limited to 80% of taxable incomeNo more carry back of NOLs but instead indefinite carry forward of NOLsNOL

Domestic productionDomestic manufacturing deduction is repealedR&D Credits: R&D credits maintained, reduction for Orphan drug credits

ProductionR&D Credits

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PwC

Key Corporate Tax Provisions (2/2)

Dividends / Toll Charge

CFC and existing Subpart F rules generally maintained with expanded CFC definition and additional compliance reporting requirements

New SubF rule introduced to tax a foreign CFCs “global intangible low-taxed income” (GILTI). If foreign CFC income on associated business assets exceeds a 10% routine return, exceeding portion subject to US tax @21% considering a 50% (reduced in later years) deduction plus 80% foreign tax credit

CFC / Sub F / GILTI

Incentive for US production for sales to foreign customersA 37.5% (reduced in later years) deduction is allowed for foreign-derived intangible income produced in the US. This results in an effective tax rate of 13.125% on such income (comparable to patent / IP box)

FDII

Anti-base erosion regimeThe Base Erosion Anti-Abuse Tax (“BEAT”) is a minimum tax mechanism to neutralize the effect of base erosion payments from US companies to any foreign related group entity

BEAT

100% Dividend Received Deduction for qualified foreign investments

Mandatory deemed repatriation tax on deferred foreign untaxed earnings (15.5% on cash / cash equivalents, 8% non-cash) payable over 8 years

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The New Provisions in a Nutshell

Non-US SubsNon-US SubsNon-US Subs

Non-US Subs

SwissCo

US HoldCo

Non-US Sales Co

USCoManufacturing

IPSale

Non-US Client US Client

Non-US SubsNon-US Subs

Non-US Subs

Non-US Subs

SwissHQManufacturing

IPDistribution

Royalty

Interest

LRD Sale

USCoManufacturingContract R&D

COGS

Sale

Sale

Sale

CFCs

Dividend

BEAT

Interest Limitation

FDII

BEAT

SubFGILTI

Participation Relief / Toll

Charge

Royalty, Services

Interest

Sale

Hybrid Mismatches

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Key Points

• US tax reform impacts any US multinational on all levels and with all measures

• Complex toll charge and GILTI calculations are required for any US multinational

• Any cross border transaction flow will need to be reviewed holistically under BEAT, GILTI, FDII as well as all current existing Sub F rules

• Future funding and repatriation and holding structures will be reviewed

• Maintaining European / non-US headquarters is expected to remain an important business model but overall value chain to be reviewed

• Location Switzerland will remain attractive but a fast positive outcome on Swiss tax reform is key and preferably elimination of 5% Swiss-US treaty rate via unilateral change is important


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PwC

US Tax Reform

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3 Data Privacy – How to master the challenges of data privacy in a connected world

PwC

What are the key concepts in the GDPR?

The GDPR is a new law in the European Union (EU) providing for uniform data protection regulation throughout the EU. Becoming effective on 25 May 2018, the GDPR is structured around six principles:

It will represent one of the highest standards of data protection in the world, creating a consistent, global, and unified legal basis for data protection and enforcement across the European Member-States.

It is relevant for all companies that hold data on individuals inside the EU or hold data of EU citizens.

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What kind of potential risks do companies face?

Under the GDPR, individuals may impose data processing bans, suspend data transfers, and order the correction of an infringement, resulting in restricted operations and invalidated data transfer.

As a result of non-compliance, fines of up 4% of the total annual turnover of the preceding financial year may be enforced. In addition, companies may experience loss of revenue, as well as high litigation and remediation costs.

Non-compliance with the GDPR could result in brand damage, loss of

consumer trust, loss of employer trust, and customer attrition.

Regulators may also require the provision of information, conduct

audits, and obtain access to premises.

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PwC

What are the key challenges for companies?

Traditionally companies have focussed on cyber/data security but don’t have;

• an inventory of the data being processed

• documentation on their data privacy compliance programme

• clear responsibilities for data privacy

• adequate internal requirements

• appropriate training programs

• sufficient terms and conditions on data privacy in their contracts

• mechanisms to comprehensively inform the affected individuals

• processes in place for data breaches, ensure compliance with data subject rights and evaluate data privacy in change management

This would all be required by now… but the reality is:

• Data privacy is still being managed as an “ad-hoc” activity, without knowing which data is being processed and no priority / adequate resources to ensure compliance with the requirements

• No-one will be able to ensure 100% compliance, e.g. requirements to inform data subjects or unclear legislation

• Unclear how legislation will be enforced, which addresses individual cases rather than being based on core principles

• Data privacy requires quantitative decision-making: Which information is required so that data owners can use their rights? When do personal interests prevail? To what extend shall data subjects be protected from themselves?

• There is a discrepancy between legal requirements and perceived data privacy

• Data privacy will be subject to further extensive legislations (Switzerland, China, Russia, etc.) – difficult to comply with

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Article 3 EU-GDPR

(2)This Regulation applies to the processing of personal data of data subjects who are in the Union by a controller or processor not established in the Union, where the processing activities are related to:

a) the offering of goods or services, irrespective of whether a payment of the data subject is required, to such data subjects in the Union; or

b) the monitoring of their behaviour as far as their behaviour takes place within the Union.

Online-Shop for clients in the European Union?

Insurance products for cross-border commuter?

Benefits for expatriates?

Employees, whose access is being logged within the EU?

Only the behaviour on the internet?

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PwC

What needs to be done?

• Define an appropriate Data Privacy Organisation that is embedded in the core business functions

• Set a clear internal strategy on how data privacy shall be addressed incl. which legislation is applicable

• Analyse and create an inventory of data processing activities, collect all relevant contractual agreements, define and prioritize actions to be taken, risk-based approach recommended

• Implement according to an action plan with remediation activities derived from the gap-fit analysis

• Develop internal requirements or adjust data processing activities accordingly

• Review contractual agreements with third and/or internal parties towards conformity with legislative requirements (clients, data processor, suppliers, other partners, affiliates, etc.)

• Adapt internal processes and systems to ensure data subject rights, automated processing of individual requests, data breach notifications, evaluation of data privacy implications in change management

• Elaborate, adapt and communicate mandatory requirements for data processing with their owners, this could also require adjustments in data processing authorisations and general terms & conditions

• Release internal policies through appropriate training and recurring auditing procedures

Clear objectives, risk-based, adequate, consider internal factors (politics, organisation and culture), central vs. decentral approach, internal responsibility and ownership, ongoing process not one-time exercise, continuous monitoring and optimisation, focus on core red-flags

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Backup slides

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What are potential implications for companies based on these principles?

It puts individuals back in control of their personal data

Under the GDPR, individuals have a right to know if an organization is processing their personal data and to understand the purposes of that processing. An individual has the rights to have their data deleted or corrected, to ask that it no longer be processed, to object to direct marketing, and to revoke consent for certain uses of their data. The right to data portability gives individuals the right to move their data elsewhere and to receive assistance in doing so.

Data breaches require immediate notifications

The GDPR requires organizations to secure personal data in accordance with its sensitivity. In the event of a data breach, data controllers must generally notify the appropriate authorities within 72 hours. Additionally, if the breach is likely to result in a high risk to the rights and freedoms of individuals, organizations will also need to notify affected individuals without undue delay.

How companies use data will be more transparent

There must be a legal basis for the processing of personal data. Any consent for the processing of personal data must be “freely given, specific, informed, and unambiguous.” There are unique consent requirements to protect children under the GDPR.

Data privacy must be embedded in the change management process

Organizations must conduct data protection impact assessments to predict the privacy impacts of projects and employ mitigations as needed. Records of processing activities, consents to process data, and compliance with the GDPR must be maintained.

Third parties could put the organisation at risk

Outsourcing of processes, technology and/or people with third parties requires companies to have stricter controls over their service providers. Because even though companies might manage effectively the data privacy risks internally, third parties will be required to ensure the same level of maturity.

It drives a different mind-set towards data privacy

GDPR compliance is not a one-time activity, but is an ongoing process. Non-compliance with the GDPR can result in significant fines. To ensure compliance with the GDPR, organizations are encouraged to embrace a culture of privacy to protect the interests of individuals in their personal data

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PwC

What is considered as personal data?

• Name and postal address

• ID-/passport-number

• CV and performance evaluation

• Phone number, e-mail address and other contact information

• Photographs and video recordings

• GPS and positioning data

• Salary information

• Credit card details and debt information

What is sensitive personal data?

• Race/ethnical background

• Religion

• Health information

• Sexual orientation

• Political opinions

• Union memberships

• Philosophical conviction

• Genetic and biometric data

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Thank you for attending the Get Together

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional

advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No

representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this

publication, and, to the extent permitted by law, PricewaterhouseCoopers AG, its members, employees and agents do not

accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to

act, in reliance on the information contained in this publication or for any decision based on it.

© 2018 PwC. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers AG which is a member firm of

PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Pharma & Life Sciences Get Together€¦ · PwC Digitalization in the Pharma & Life Sciences area...

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Transcript of Pharma & Life Sciences Get Together€¦ · PwC Digitalization in the Pharma & Life Sciences area...