Announcing on Monday that a tax bill has been passed over the weekend, Puerto Rico’s governor, Luis Fortuno, said from now on the country will tax offshore multi-national companies earning $75m or more a year.
Business and income taxes for companies based in Puerto Rico, however, will be cut by $1bn annually over the next seven years, to help the country recover from the recession it has been in since 2006.
PhRMA president, John Castellani was quick to respond, arguing the new rules will “dramatically hinder [member] companies’ positive efforts within Puerto Rico,” citing the jobs they create and investment opportunities they provide as likely casualties.
Castellani also expressed his disapproval of the measure being passed without public hearings, asserting, “Transparent and predictable tax policies are critical to helping foster innovation in Puerto Rico.
“These policies should be developed and vetted through a public process involving all relevant stakeholders, including PhRMA members,” he added.
“Biopharmaceutical research companies play a vital role in Puerto Rico’s economic recovery and global economic competitiveness,” said Castellani, “However this work depends on a national plan and policies that support innovation.”
He warned, “This law may have significant consequences that could impact innovation and the island economy.”
Greg Keueterman, an Eli Lilly spokesperson, echoed Castellani’s sentiments, telling in-PharmaTechnologist, “This tax will likely affect our Puerto Rican operations.”
He believes that while the government of Puerto Rico thinks the tax can be addressed through US foreign tax credits, “the legislature erroneously assumes all sales from Puerto Rican operations come into the US, and wrongly assumes companies can fully utilise the incremental paid foreign taxes as credits.”
Affect on biopharma industry
Keueterman also warned that the tax increases could deepen the island’s economic crisis, pointing out that they will affect dozens of American companies within the biopharmaceutical industry that employ nearly 100,000 people in Puerto Rico.
“Lilly, like all companies affected by this development, will continue assessing this new law, along with its impact, and we’ll determine the next steps that make sense from a business perspective,” he said.
A further reduction in drug industry investment in Puerto Rico would surely come as a blow to the economy, as the biopharmaceutical research sector provides 94,217 jobs and contributes $3.6bn to the Commonwealth, according to a survey conducted in 2006.