In brief
The proposed EU Pharma Package would require EU wholesale distributors to purchase medicinal products, including through financial transactions, only from sellers holding an EU-issued wholesale distribution authorization (WDA) or manufacturing and import authorization (MIA). As a result, Swiss and other non-EU principal structures, in which products are manufactured in or imported into the EU while invoices are routed through a non-EU entity, may come under pressure once the new rules apply, expected as of Q4/2028. Possible responses, ranging from an EU principal, EU trading branch or EU master distributor to targeted adaptations that preserve the non-EU principal, may have significant transfer pricing, exit tax, corporate income tax, value added tax (VAT) and customs consequences. Groups should assess these implications now, before changing entities, contracts, invoicing flows or functions, so that the regulatory solution does not inadvertently dictate the tax outcome.
Key takeaway
- The forthcoming EU pharmaceutical framework may require groups to reconsider supply-chain models in which contractual and financial flows run through a Swiss or other non-EU principal but the physical flow of goods does not.
- The issue is not only regulatory. Resulting changes to the supply chain may affect transfer pricing, profit allocation, exit taxation, VAT and customs.
- Potential responses range from the creation of a new EU principal, EU trading branch or EU master distributor to targeted adaptations intended to preserve the non-EU principal financial flows.
- Groups should assess the tax consequences before changing legal entities, contracts, invoicing flows or functions. The regulatory response should not inadvertently dictate the tax outcome.
- The time for action is now: Despite the envisaged applicability only in Q4/2028, the potentially necessary measures may require significant planning and implementation time.
What is changing?
Many multinational pharmaceutical groups operate principal structures that separate the physical movement of medicinal products from contractual and financial flows. Medicines may be manufactured in the EU and delivered directly to an EU distributor, or manufactured outside the EU and shipped to an EU importer, while the contractual purchase and resale to an EU-based distributor is routed through a Swiss or other non-EU principal. The proposed EU regulatory framework places these arrangements under increasing pressure, with measures expected to apply as of Q4/2028. The issue is particularly relevant for principal/invoicing structures involving a non-EU entity, including Swiss principal structures, where:
- Pharmaceuticals are manufactured or otherwise located in the EU;
- A non-EU entity acts as principal/seller of record and invoices an EU-based distributor; and
- The products remain physically within the EU rather than being imported into and re-exported from the principal jurisdiction.
The proposed EU Pharma Package significantly tightens the regulatory framework applicable to pharmaceutical supply chains by explicitly requiring that an EU wholesale distributor only purchases medicinal products from sellers who hold an EU-issued license/authorization which can either be a WDA or a MIA. By doing so, the EU Pharma Package harmonizes divergent national approaches that exist today.
Accordingly, a Swiss principal operating under its Swiss regulatory framework (relying on a Betriebsbewilligung issued by Swissmedic) may no longer be an eligible seller to EU-based purchasers operating under a wholesale distribution license. This could therefore affect existing structures where a Swiss or other non-EU principal is interposed in the invoicing chain even without being the seller to an EU entity. The central tax question is whether the existing tax and transfer pricing architecture can be maintained, and what consequences arise if it cannot.
Adjustments or even changes may be required to the specific set-up and supply chain to ensure compliance with regulatory requirements. Possible responses include establishing an EU principal, EU trading branch or EU master distributor model. These may come with a variety of tax implications:
Main tax implications
Transfer pricing and profit allocation
A change to the financial flow may create new intercompany transactions or alter existing transactions. Groups must determine whether an EU entity will merely assume additional contractual responsibilities or whether functions, assets and risks genuinely move. Rerouting invoices alone should not determine where entrepreneurial profit belongs. Conversely, substantive changes may require a revised functional analysis, remuneration model and intercompany agreements.
Exit taxation and restructuring charges
Moving functions, risks, assets or contractual relationships from a Swiss or other non-EU principal into an EU entity may trigger exit-tax or valuation issues. The outcome depends on what is actually transferred and on the rules of the jurisdictions concerned. The position should therefore be analyzed before implementation, not after functions or contracts have moved.
Corporate income tax and effective tax rate
A shift toward an EU principal, trading branch or master distributor model may change where pharmaceutical trading income is taxed and affect the group effective tax rate. Alternative models should be compared on an after-tax basis. The option with the lowest regulatory complexity may not produce the best overall result once corporate income tax, transfer pricing and implementation costs are included.
VAT and invoicing flows
Existing models rely on a separation between physical and financial flows: goods remain within the EU while invoices pass through a non-EU entity. Changing the seller, contractual counterparty or invoicing chain may affect transaction characterization, VAT registrations, invoicing and reporting obligations. Revised commercial flows should be mapped against the VAT treatment in each relevant jurisdiction.
Customs implications
Regulatory-driven changes may also affect customs registrations and the alignment between contractual, physical and customs flows. Customs and VAT should be assessed together with transfer pricing and corporate tax, particularly if contracting parties, supply routes or legal entities change.
Baker McKenzie comment
The EU Pharma Package should not be treated as a stand-alone regulatory project. For pharmaceutical groups operating Swiss or other non-EU principal structures, changes to the treatment of financial flows can reach directly into operating models designed around the separation of physical product flows, contractual relationships and entrepreneurial functions. A change to one element may therefore have consequences across transfer pricing, corporate income tax, VAT and customs.
The key is to avoid allowing the regulatory solution to dictate the tax outcome inadvertently. Before activities are transferred to an EU entity or contractual and invoicing flows are rerouted, groups should establish which changes are required from a regulatory perspective and which elements of the existing principal model can remain unchanged. A modification of the contractual supply chain does not automatically mean that all economically significant functions, risks and profits must move, but the resulting model must be supportable under the applicable tax and transfer pricing rules.