A Senate report has slammed the ACRO-backed overseas profit tax break for doing more to help execs’ pay packets than US employment.
Implementation of the act would cut tax rates for biopharm and contract research organisations (CRO) bringing cash earned overseas into the US. Supporters of the plan say it will drive investments in US staff and innovation, but analysis of the 2004 act claims boardrooms are the main beneficiaries.
“Rather than producing new jobs or increasing research and development expenditures, the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation”, a report by the US Senate Subcommittee on Investigations , said.
Following the 2004 act big pharma brought lots of cash into the US. Pfizer, Merck & Co, Johnson & Johnson, Schering-Plough, Bristol-Myers Squibb, and Eli Lilly make up six of the top 10 companies by amount brought into the country, the report claims.
The period after the 2004 act coincided with big pharma making deep cuts to US operations. These cuts contributed to the top 15 repatriating firms shedding 20,931 US workers after the 2004 American Jobs Creation Act was passed, the report said.
Repatriation supporting coalition Win America has criticised the report, authored by Democratic Senator Carl Levin, as being one-sided. “To prove his predetermined outcome he recycles a mash-up of old studies and ignores a slew of more recent economic evidence and analysis”, Win America said.
Win America cites eight businesses that made investments in the US after the 2004 repatriation to support its argument. Of the eight, seven are information technology companies and the other is an energy businesses.
The Senate report is the latest in a series of conflicting studies into the impact of tax repatriation. Studies by the US Chamber of Commerce and New Democratic Network both backed the tax, but have been criticised by groups such as Citizens for Tax Justice .
John Lewis, vice president of ACRO (Association of Clinical Research Organizations), told Outsourcing-Pharma: “One thing we know for sure is that US-based CROs are not going to bring back the more than $1bn in overseas profits that they are holding if they are taxed at a 35 per cent rate.
“The idea that having perhaps $1tn injected into the US economy through repatriation would not lead to increased investment and job creation is simply illogical.”