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Bermuda Tax Haven Plays a Large Role in Opioid Manufacturer Fortune

The Sackler family empire comprises Purdue in America, Napp in Britain, and Mundipharma in Europe and Australasia. The companies have helped amass a £10 billion fortune, protected, in part, by the tax haven of Bermuda.

The Evening Standard in the UK released a report detailing that while their opioid painkillers are manufactured in Cambridge, the Caribbean is actually the heart of the Sacklers’ tax avoidance strategy. They report the Sackler family has allegedly diverted billions of pounds in profit to Bermuda to avoid paying millions in taxes that would have been due to the UK or Europe.

The Investigation into Opioid Companies

Napp and Mundipharma are leaders in the UK and European oxycodone markets. Sackler owned drug companies make up 68% of the oxycodone market in England, and 29% of the value of the entire £263 million opioid market, according to the paper.

The investigation revealed, with the help of a former Mundipharma employee, drugs are manufactured at Napp’s headquarters in Cambridge. When the drugs are then sold to the NHS, the proper procedures are carried out and UK taxes are fully paid. However, when the drugs are sold to Mundipharma companies that are controlled by the Sackler family, the sales are diverted to Bermuda.

A Tax Haven

This strategy has allowed profit to be taken on the island nation, where no tax is payable. Mundipharma locations in Bermuda purchased the drugs from the UK and then sold them to Mundipharma entities for a substantial amount more. This keeps the profit in Bermuda. The products were then shipped directly from the UK to the country they were purchased from and never resided in Bermuda.

A Look at the Numbers

The Evening Standard reports that over 25 years the amount of profits diverted to Bermuda from Mundipharma Europe and Australasia was well over £1 billion. They used 2015 profits as an example to illustrate just how much money is avoiding taxes. If the 2015 profit had been taxed in the UK, there would have been a corporation tax of 20%, which adds up to £30 million. Considering that the profit diversion scheme has been going on for more than 25 years, this could mean that the companies collectively avoided not just millions, but hundreds of millions of pounds of taxes due to the UK.

However, in 2015 the change of a UK law made the diversion of profits offshore more difficult and eventually the companies were forced to make adjustments to their processes. This came soon after the increasing and widely-known agitation of German tax officials who were continuing to see the Mundipharma companies avoid taxes. However, the changes did not bring about a total end to the diversion of the Mundipharma profits, but only reduced it.

According to the paper’s sources, a network of Sackler-controlled companies is still registered in and operating out of Bermuda, including Mundipharma Medical Company, Mundipharma Pharmaceutical Company, Mundipharma International, Mundipharma International Holdings, Mundipharma International Corporation, Mundipharma Laboratories, Mundipharma Research Company, Mundipharma Company, Rooksnest Estate and Merganser.

Is it Legal?

Well, maybe. The paper quoted a tax expert as saying, “None of this is illegal or tax evasion, provided the transfer pricing arrangements with Bermuda could be commercially justified. The basic tax rule is that profits are taxed where they are earned. As the Sackler drugs are made here and sold here or in Europe, profit should be taxed here and/or in Europe.”

But for the profits to be diverted to Bermuda, what happens in Bermuda needs to genuinely add value. The value is not clear at this point.

Napp and Mundipharma released a joint statement saying in part, “The Napp and the Mundipharma companies based in the UK have a long history of paying UK taxes. From 2013 to 2016, they paid £66.5 million of UK tax at the full UK corporation tax rate on taxable profits of £317 million.”

To learn more about this case or other types of financial fraud and tax evasion, contact Jeff Newman Law today!