Report Sees Huge Pharma Tax Hike Over Next Decade

The global pharmaceutical industry is going to have to adapt to a rising corporate tax burden thanks to rising government debt and industry consolidation, according to a report published by PricewaterhouseCoopers (PwC).

The report, entitled “Pharma 2020: Taxing times ahead,” is the result of a wide-ranging survey of industry tax professionals. It finds that tax rates for the pharma industry will likely rise in the near future in the US, as well as and other advanced economies with high public debt. This will drive business to developing countries and those with beneficial tax incentives.

“Clearly tax isn’t the main thing, but it is an important thing,” said Mike Swanick, PwC’s global pharmaceutical and tax leader. “A lot of European pharma companies are trying to serve their clients on a global basis, so they’re looking at emerging countries to ensure that their level of tax is predictable, reliable, and relatively stabile.“

The study forecasts North America to fall from its place as the top pharmaceutical market in 2008 to the third largest in 2020, behind Europe and Asia/Africa/Australia.

“One of the other phenomena we’re seeing is the continued consolidation of companies. As companies struggle with R&D productivity and the expiration of the blockbuster model, we’re looking for more companies to grow, integrate, and merge with-and that brings about a whole onslaught of complexity in managing the tax affairs of a company.”

In other words, pharma will likely move toward a more collaborative business model that encourages global investments. “Green” taxes and fewer incentives are likely to drive investments away from the US and UK. Companies that have been headquartered in the US may look to set up shop in a country with a more beneficial tax rate. The report eyes China, India, Puerto Rico, Singapore, and Ireland as potential hotspots for investment in the next decade. Swanick also cites Belgium, Luxemburg, and Holland as European countries with extremely attractive tax incentives primed to draw increased investment.

“The US started [to become less attractive] with the economic crisis and healthcare reform. But I don’t think it’s unique to the US. We’re seeing competition globally,” said Swanick. “We’re seeing a lot of governments asking how to balance the need for revenue and maintain an attractive environment for investment, and that’s a very complicated balance.Tax planning is going to become more difficult for many reasons, especially the uncertainty about future tax regimes,” said Swanick.