Lack of tax transparency in '10 may put pharma off Puerto Rico

In October 2010 Puerto Rico introduced a heavily criticised four per cent tax on offshore companies with manufacturing sites on the island. By claiming a US federal tax credit against the levy companies may actually have benefited from the tax but its imposition could still damage Puerto Rico.

“The lack of industry involvement during the legislative process has been called into question and such lack of transparency may discourage drugmakers from expanding operations on the island​”, property services business Jones Lang LaSalle (JLL) said in its 2011 report into life sciences clusters​.

Potential hesitancy to expand in Puerto Rico comes at a time when external investment in the island is falling. “There has been a significant decline in inward investment since 2007 as the tax benefits sunset for pioneer investors​”, JLL said.

Over the period 2003 to 2006 Puerto Rico received inward pharmaceutical investment of $14.1bn (€11.1bn), putting it in the top 10 receiving countries, JLL found. From 2007 to 2010 this figure fell by 75 per cent, pushing Puerto Rico out of the top 10.

“The data suggests that Puerto Rico, the second largest investment destination in the Americas, struggles to retain a viable value proposition to companies with incentives that have, or are about to, end​”, JLL said.

Economic shift​

Amid the decline there has been positive news, such as a $65m expansion by Merck & Co in 2009, and Puerto Rico is attempting to boost innovation through initiatives such as the San Juan Knowledge Corridor. However, the transition to a more innovation-driven economy is still ongoing.

“Manufacturing constituted 97 per cent of all investment in Puerto Rico. Although Puerto Rico is trying to organise around research and development and advance its value proposition, the data suggests it has not yet been successful​”, JLL said.