Pharma faces rising taxes

Rise in taxes

A new report by leading consultancy firm PricewaterhouseCoopers (PwC) has warned that factors including changing market dynamics and rapidly evolving healthcare reforms are likely to push up the effective tax rate for the pharmaceutical and life sciences industry.

According to the study, entitled Pharma 2020: Taxing times ahead - Which path will you take?, rising tax rates will also be dictated by the impact of the global financial crisis and the
diminishing reliance on the blockbuster drug model. The findings of the report warn that such changes in the industry will make tax planning more complicated and challenging for tax executives working for pharmaceutical companies.

The survey is based on a poll of 35 senior tax executives from pharmaceutical, biotech and medical device companies and warns that six in 10 tax leaders agree that an increase in the effective tax rate for the pharmaceutical industry is inevitable.

R&D approach

In addition to these findings, nearly two thirds of respondents (63 percent) agreed that the cost of increased taxes on their organisations might be passed onto consumers, unless they find ways to operate more efficiently and transform their approach to R&D and sales & marketing. 62 percent of respondents said they are looking to maximize tax credits and other incentives for R&D.

What's more, all of those polled said they believe that the demand for tax specialists will grow substantially as tax issues for the industry become more complex.

Critical consideration

According to Michael Swanick, global pharmaceutical and life sciences tax leader at PwC, "to continue delivering value to shareholders and society, pharmaceutical and life sciences companies must make strategic decisions about how they will drive innovation and profitability, but as they do so, each company's top tax executive needs a prominent seat at the 'C suite' table.

"Tax planning will be a critical consideration, not an afterthought, of long-term business plans to grow, buy, merge or sell and it will be one of the most important considerations in deciding where to locate IP (intellectual property), manufacturing and service delivery."

More than half of those included in the study said they are now being consulted early on by senior management in strategic business decisions, and thereby have a greater influence these days over the direction of the company.

Nonetheless, while 34 percent said they are consulted late in the game, nine percent of tax leaders said they are only informed after the fact about strategic business decisions that have tax implications for the organisation.

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