Donation of Medicines by Canadian Pharmaceutical Companies to the Developing World

The Canadian Federal Budget, delivered in March 2007, provided an additional tax incentive to Canadian pharmaceutical companies to provide drugs to certain Canadian registered charities as long as the drugs will be used outside of Canada. 

The March 2007 budget provided the following:

“Donation of Medicines for the Developing World

Donations by corporations of property held in inventory, to registered Canadian charities and other qualified donees, are eligible for a charitable donations deduction equal to the fair market value of the property gifted.  In order to provide an incentive for corporations to participate in international programs for the distribution of medicines, Budget 2007 proposes to allow corporations that make donations of medicines from their inventory to claim a special additional deduction equal to the lesser of

  -50 per cent of the amount, if any, by which the fair market value of the donated medicine exceeds its cost; and
  -the cost of the donated medicine.

This additional deduction will be available only when the donee is a registered charity that has received a disbursement under a program of the Canadian International Development Agency, and the gift is made in respect of activities of the charity outside of Canada. This measure will apply to gifts made on or after March 19, 2007.”

Will some good come from this?

Proponents of this budgetary change would probably suggest that there is a huge need for drugs in the developing world, very little funds to pay for them and this will provide an incentive to Canadian pharmaceutical companies to make donations. 

In a press release entitled “Canada’s New Government Provides an Incentive to Get Life-Saving Drugs to Developing Countries” the government quotes Finance Minister Flaherty as saying “There are people in Africa and in developing countries around the world in desperate need of medicines like the ones in this very facility. It’s unacceptable to Canadians that pharmaceuticals remain on shelves while people are suffering from life-threatening diseases. I encourage all Canadian manufacturers to step up and donate more medicines to worthwhile charities, getting them off the shelves and into the hands of those who would most benefit from them.”

It is interesting to note that in the budget the Department of Finance lists what it anticipates different tax measures will cost in foregone taxes in different years. The Department of Finance did not put down a figure for this “tax expenditure” so we don’t know how much this measure will cost in foregone revenues. 

For the gift of medicines to be an eligible gift there are three conditions 1) the gift must be in inventory of the corporation 2) the gift must be made to a registered charity and the registered charity must have received “a disbursement under a program of the Canadian International Development Agency” and 3) the corporation “directs the charity to apply the gift to charitable activities outside of Canada.”

The requirement that the registered charity receiving the donations has received a disbursement under a CIDA program was probably an attempt at a quality control initiative in that there are far fewer entities that have received CIDA funding than the 82,000 charities and presumably CIDA vets the groups that it provides disbursements to.  Keep in mind that if the registered charity has ever received a disbursement from CIDA the charity will be acceptable.  There is no requirement that, for example, the charity have received a CIDA disbursement in the last five years.

With respect to the necessity that there be a direction that the registered charity apply the gift to charitable activities outside of Canada note that there is no requirement that the medicines be used in a developing country - just outside of Canada.  Although the Ministry of Finance press release refers to “Life-Saving Drugs” there is no requirement that the drugs be life-saving and many drugs in Canada are probably not life saving - I am thinking of rogaine, propecia and viagara.

A few concerns with donations of medicines in the past?
-sometimes the medicines are close to expiry and the company is wanting to offload them.  By the time they get to the developing countries they are beyond their expiry date. 
-the packaging of the medicines (for example in English/French) is not always appropriate for the country they are going to.
-the medicines may not be the most appropriate for a particular situation (first line versus second line treatments) 
-the cost of the medicine is not “zero” because there is a tax cost of this incentive.  Many medicines can be procured outside of Canada for far less than what they cost in Canada but then that would not result in those Canadian pharmaceutical companies benefiting but instead Indian or Brazilian generic manufacturers.
-providing drugs to countries have far less impact if the “North” has succeeded in poaching most of their health care professionals who would be the ones who diagnose, treat and prescribe these medications.
-there are substantial costs of storing, sorting and shipping the drugs to developing countries from Canada as opposed to having them procured in country.

Some humanitarian organizations do not accept gifts in kind of medicines or medical equipment, while others do.  If you want to read about some of the concerns with donated medicines the WHO has an article on the subject at http://whqlibdoc.who.int/hq/1999/WHO_EDM_PAR_99.4.pdf

One cannot but think that this measure was meant to distract people from what appears to be the abysmal failure of the Canada’s Access to Medicines Regime to provide inexpensive medicines to developing countries and to reduce the pressure on the government to change the Canada’s Access to Medicines Regime to make it actually work.  One can read the views of different pharmaceutical companies and NGOs to the CAMR at http://camr-rcam.hc-sc.gc.ca/review-reviser/index_e.html  When CAMR was introduced many years ago it was touted as providing a method by which Canadian generic drug companies could produce and export copies of certain vitally important low-cost versions of patented drugs. 

While there is no doubt that some good will come from this measure it would have been far more effective for the Canadian government to provide funding to certain progressive, democratic governments in the developing world or reputable Canadian charities to spend the funds in a manner that will most improve the health care of their citizens and which may include procuring the most appropriate and reasonably priced medicines based on their priorities and needs. 

GlobalPhilanthropy.ca was created by Mark Blumberg, a lawyer at Blumberg Segal LLP in Toronto, Ontario.  If you have legal questions about non-profit organizations or charities in Canada he can be contacted at .(JavaScript must be enabled to view this email address) or at 416-361-1982 x. 237. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit the Blumbergs’ Non-Profit and Charities page at http://www.blumbergs.ca/non_profit.php or http://www.globalphilanthropy.ca