Drugmakers, the taxman cometh. As if pharma didn't have enough bogeymen to worry about, right? PricewaterhouseCoopers is warning that as companies do the things they need to do to combat stagnant sales in the developed world, generic competition, pricing pressures, et al, they'll be creating bigger tax bills for themselves. If they diversify broadly, they'll likely do more work in their target markets, which tend to be jurisdictions with higher taxes, the accounting firm says.
Of course, debt-laden governments will play a part, too, PwC says in its latest Pharma 2020 white paper. Attempting to fight their own deficits, industrialized nations will crack down on many of the tax-minimization techniques multinational drugmakers use to defer taxes or move income to countries with lower tax burdens.
U.S. President Barack Obama has already pledged to close corporate tax loopholes, as you know, but so have the G-20, which promised to target tax havens as part of a global economic recovery plan. And pharma may come in for particular attention; the U.S. Congressional Budget Office recently tagged the industry with one of the three lowest effective tax rates. Indeed, in the pharma/life sciences world, PwC warns, Big Pharma looks ripe for higher taxes because there's a wide variance in ETR, from generics firms' 37 percent average to biotech's 28.2 percent to pharma's 23.8 percent.
How can pharma fight back? Well, emerging markets may be the ticket not only for sales growth, but for tax minimization, too. PwC suggests that emerging countries will offer big tax breaks to life sciences companies, because those countries want to build knowledge-based economies.