American pharmaceutical MSD receiving billions in tax benefits in the Netherlands

The American pharmaceutical MSD receives hundreds of millions of euros in tax benefits in the Netherlands every year, amounting to billions of euros from the Dutch treasury over the past few years. The money comes from a scheme intended to stimulate innovation and employment, but MSD is moving its pharmaceutical research and production to other countries, Trouw and Het Financieele Dagblad reported.

The money comes from the Innovation Box, through which companies can have the profits from a specific innovation taxed at a lower rate. Last year alone, MSD, known as Merck & Co in the United States, received over 900 million from the innovation box.

The scheme has been under fire for years. Policy evaluations show that companies would have innovated even without this tax benefit. So the Innovation Box effectively rewards companies for doing what they were planning to do anyway.

Opponents also criticize that the bulk of the money from the Innovation Box goes to a very small group of already very successful companies - chip machine maker ASML, vacation booking site Booking.com, and MSD. According to Trouw, over 90 percent of the Innovation Box’s budget goes to these three companies. The rest of the around 3,000 companies that use the scheme share less than 10 percent of the money that the government spends on it.

Proponents of the scheme primarily point to its importance for the business climate. Such an attractive tax rebate for innovative companies makes it less likely that they would leave the Netherlands. But MSD already moved its research arm into new cancer drugs out of the Netherlands in 2016 and closed a production plant in Oss, Noord-Brabant, last year.

MSD is best known for the cancer drug Keytruda, which generated €27 billion in global revenue last year. Keytruda’s mechanism of action was discovered 20 years ago by Organon, a pharmaceutical company from Oss, which MSD acquired in 2009. Because Organon once invested heavily in research in the Netherlands and the patent is still held here, MSD is allowed to make use of the Innovation Box.

MSD told the Dutch newspapers that its use of the Innovation Box is coordinated well with the Dutch Tax Authority. The company also stressed that it still has a few thousand employees in the Netherlands and a research department for veterinary medicine in Boxmeer.

For the time being, the Dutch government intends to continue with the Innovation Box as it is. VVD MP Claire Martens told Trouw that she sees no problem with the bulk of the money ending up with three large companies. “These innovative companies do not stand alone.” Dozens to thousands of smaller companies directly benefit from their success, for example, as suppliers, she said. “Remove one company and the house of cards could collapse.”

MP Luc Stultiens of PRO, formerly GroenLinks-PvdA, called such a “gigantic tax cut” for a large company like MSD “completely inexplicable.” According to PRO, these “inefficient tax cuts must be overhauled as soon as possible,” so that the money can be used for “real innovation.”