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US Senate bill to offer CROs a share of R&D tax credit

By Zachary Brennan+

04-Aug-2014
Last updated on 04-Aug-2014 at 16:09 GMT

ACRO is supporting the bill, which it helped to craft.
ACRO is supporting the bill, which it helped to craft.

Sen. Tom Carper (D-Del.) introduced a bill last week that aims to further incentivize research in the US and allows CROs (contract research organizations) to capture a share of the R&D tax credit when research is outsourced. 

The Association of Clinical Research Organizations (ACRO) is putting its weight behind the bill, which was introduced last week as the Competitiveness and Opportunity by Modernizing and Permanently Extending the Tax Credit for Experimentation, or COMPETE Act. The bill would expand, simplify and make permanent the federal R&D tax credit, which is currently re-authorized each year by Congress.

CRO Impact

John Lewis, SVP of policy and public affairs at ACRO, explained to Outsourcing-Pharma.com how the bill will impact CROs (contract research organizations): “Right now, the way the R&D tax credit works is if you’re a sponsor company and you do all of your R&D internally, you can get 100% credit for eligible expenses,” about 70% of which includes wages.

But if a sponsor outsources some of that R&D work, only 65% is eligible under the current tax credit, and CROs do not receive any of that amount. In other countries, such as the UK, France, Canada and Austria, CROs receive generous tax credits to further incentivize their work.

However, under the new bill, Lewis told us, CROs would be able to “take the 35% of the expenses that they can’t currently take,” which would come at a time when outsourcing is increasing, and employment and expertise is shifting to the CRO industry.

In terms of the benefits to CROs – it would be in the millions of dollars,” Lewis said.

ACRO has been working on the bill for about a year and a half, he added, noting that it’s been well received by a number of folks on the House and Senate side.

When the first R&D credit was introduced in the ‘80s, the CRO industry barely existed,” Lewis said, noting that now the US is seeking to play catch up with its international counterparts in terms of incentivizing research in the US.

The bill would also increase the credit rate to 25 percent of qualifying research investments, while also simplifying it to remove administrative barriers that companies are currently facing.

And although the tax credit technically expired at the end of 2013, Lewis told us there’s a chance it could be authorized in September or November and made retroactive “as they’ve done in the past. There’s broad agreement that it should be made permanent and simplified and in some ways expanded…the issue is how to pay for this and tax reform.”

Sen. Carper noted that some studies have concluded that the average private rate of return on R&D investment is roughly half of the average return to the broader economy. “That is why the R&D credit needs to be improved, so that companies have sufficient incentive to undertake research projects,” he said.

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