ACRO backs proposed tax cuts on earnings generated outside US

By Gareth Macdonlad

- Last updated on GMT

ACRO has backed plans to reduce the tax rate on foreign earnings sent back to the US, arguing that the move would create jobs in the contract research sector.

The proposals – set out in the Foreign Earnings Reinvestment Act​ put before the Senate last week – would cut tax on repatriated foreign earnings from its current 35 per cent rate to just 8.75 per cent. In addition, companies that repatriate overseas earnings and add jobs in the US during 2012 would be entitled to a 5.25 per cent rate.

The Bill – co-proposed by Republican Senator John McCain and Democratic counterpart Kay Hagan - also aims to discourage US job cutting by adding an extra $75,000 (€55,645) to a company’s taxable gross income calculation for each position eliminated during the period.

US contract research organisations (CROs) generate a large proportion of their revenues outside the country – recent analysis​ suggested industry leaders like PPD, Covance, Parexel, Icon and Charles River Laboratories make half of their earnings overseas – which makes the sector a likely beneficiary if the plan becomes law.

ACRO chairman Joe Herring, CEO of Covance, told Outsourcing-pharma.com that: “Member companies support the repatriation of global earnings because it allows us to invest in infrastructure, innovation, and job creation that will help sustain the industry's growth.

Herring also rejected the idea that companies taking advantage of this scheme may try to artificially generate higher earnings on work done outside the US.

It is in the ACRO member companies' best interest to attract the best scientific and medical talent to our industry. As global clinical trials increase, we need highly-skilled talent to conduct these trials. Paying ex-US employees less than what is competitive in the local markets, would be counter to delivering the quality and commitment to research standards expected by our biopharmaceutical clients.”

This point was also stressed by Association of Clinical Research Organisations (ACRO) executive director Doug Peddicord.

“Clinical research organizations are a prime example of an industry that was founded not long ago with American ingenuity and where US companies remain among the dominant players globally​," said Peddicord, adding "our members typically derive at least half of their revenues from outside the US​."

He also said that ACRO is committed to supporting McCain and Hagen in their efforts to get the Bill into law.

Quintiles' backing

1KH Dennis Podium with Hagen

ACRO member Quintiles was similarly positive about the proposals, with CEO Dennis Gillings hosting a presentation on the subject by Senator Hagen at the CRO's corporate HQ in North Carolina last week.

Quintiles spokesman Phil Bridges told Outsourcing-pharma.com that: “Current tax rates penalize global companies”​ and that​passage of the Act would let the firm return "a portion" of its overseas earnings – which make up roughly 50 per cent of its total income – to the US to invest in jobs and infrastructure.

Quintiles has an aggressive growth strategy and greater cash would enable further pursuit of this strong, sustained growth through new job creation, from service expansion, acquisitions and innovation​.”

Job creation?

But despite the support of the contract research sector and other industries the Foreign Earnings Reinvestment Act has still come in form some criticism, particularly from groups sceptical that it will create US jobs.

Left leaning think tank the Institute for Policy Studies​ is one critic, suggesting that a similar move enacted by the US government in 2004 failed to create any new jobs and in fact many companies that took advantage of the legislation actually reduced their headcounts during the period.

Similarly, right wing group the Heritage Institute raised the 2004 act in its criticism, predicting that: “Like its predecessor, [the Foreign Earnings Reinvestment Act will] have a minuscule effect on domestic investment and thus have a minuscule effect on the U.S. economy and job creation.

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