US Drugmakers Urge Tax Code Reform

24.02.2017 -

In a letter to the leadership of the US Congress, 16 CEOs of major American companies, including Pfizer’s Ian Read, Eli Lilly’s David Ricks, Merck & Co’s Ken Frazier and Celgene’s Mark Alles, called for an overhaul of the US tax code, which they say is a “major impediment to economic growth.”

Lowering rates and enacting other changes proposed by the Speaker of the House of Representatives, Paul Ryan, and House Ways and Means Committee head, Kevin Brady, would “free up much-needed capital for companies to invest here in the US and help stop corporate inversions and acquisitions of US companies,” the executives said. Writing on behalf of the industry organization American Made Coalition, they urged Congress to move the U.S. toward a territorial taxation system.

Under territorial taxation, only tax local income earned inside the country would be taxed. The US has a worldwide taxation system that imposes income tax on all of a business' income (as well as private citizens) regardless of where the money was earned. Companies can defer tax on income earned abroad by keeping their earnings off-shore, and many currently do. Some, such as Pfizer, are said to sitting on a stockpile of overseas cash. If this could be repatriated, this could encourage more M&A activity in the US market, some think.

Ryan’s tax plan includes a proposal for a border adjustment policy that would impose taxes on goods imported into the US as a means of rebalancing the trade deficit and putting US exporters on a more competitive footing. Such a policy could also encourage pharmaceutical companies to produce more drugs domestically, says the trade journal Biopharma Dive.

Drugmakers have been trimming workforces and outsourcing production for years, the journal points out, but the prospect of dramatic changes to US tax code could change the incentive. A more favorable tax code along with the border adjustment tax, could factor heavily in decisions to re-shore manufacturing, it suggests.

Earlier this week, Trump held a meeting with manufacturing CEOs who have made a commitment to bringing jobs back to the US – some of them on the contingency that tax rules are changed. Among them was Merck’s Frazier, reports said.