The Republican Tax Cuts and Jobs Act, unveiled in the House Thursday, would cut taxes by nearly $1.5 trillion over the next 10 years — impacting numerous taxpayers across the nation, including pharmaceutical companies, according to STAT.
Here are six provisions in the bill that could have an impact on the pharma industry.
1. The bill would cut the top corporate tax rate by 15 percent. Under the proposal the top corporate tax rate would drop from 35 percent to 20 percent, which will save pharmaceutical giants money.
Following the bills unveiling, Biotechnology Innovation Organization released a statement applauding Republican lawmaker's effort to "stimulate American investment, support job creation and promote life-saving innovation."
2. The legislation would eliminate tax credit for orphan drugs. The bill includes a provision that would repeal a tax break that pharmaceutical companies can get for developing and testing an orphan drug, which is a chemical agent developed specifically to treat a rare medical condition.
The drug industry in the past defended this tax break vigorously, arguing it encourages investment in diseases where patients generally have limited options.
3. The Tax Cuts and Jobs Act will preserve the research and development tax break. While the GOP bill could cuts tax breaks for rare-disease research and development, companies can still receive tax breaks for investing in general research and development, according to STAT.
4. The legislation proposes a lower tax rate on repatriated earnings. Any company that has money overseas may benefit from the provision that would, just once, lower the tax rate for corporate money repatriated. In particular, companies would pay 12 percent on cash returned to the country and just 5 percent on non-cash assets. The current rate companies pay on income returned to the U.S. is 35 percent, according to the New York Times.
According to Bloomberg, pharmaceutical giants, Johnson & Johnson, Amgen, Gilead and Celgene keep a large majority of their cash outside of the U.S.
5. The bill adds a new tax for multinational, international companies. The bill would impose a 10 percent tax on earnings that U.S. companies make overseas. Currently, the earnings made overseas do not get taxed until they are brought to American soil.
6. The bill would impact executive compensation. Currently, businesses can write-off up to $1 million in compensation expenses for the top five earners in the company and any additional amount they earn beyond the $1 million, which is called "performance-based" exception. The bill would revoke the "performance-based" exemption, which many public corporations rely on to pay their executives more than $1 million per year.
Ben Proce, a tax partner at PricewaterhouseCoopers, told STAT that eliminating the exception will have a "chilling effect" on compensation packages in the drug industry. "I think boards will have to evaluate differently now the after-tax cost of that compensation that will go up to the company," he added.