The bipartisan Competitiveness and Opportunity by Modernizing and Permanently Extending the Tax Credit for Experimentation, or COMPETE Act, would simplify, expand and enhance the research and development (R&D) tax credit. It would also expand the reach of the credit by allowing firms undertaking contract-funded research projects to claim a portion of the credit.
ACRO (Association of Clinical Research Organizations) again expressed support for the bill. The association previously told us CROs would gain millions of new dollars from the bill. Under the current system, if a sponsor outsources R&D work, only 65% is eligible for credit, and CROs don’t receive any of the credit.
“The bill is essentially the same [as the original bill introduced in August], there were a couple of modifications made from the one introduced in last Congress but these did not affect the contract research section,” ACRO SVP John Lewis told Outsourcing-Pharma.com. “The significant development is Senator Toomey coming on board as a co-sponsor making the legislation bi-partisan. In terms of qualifying expenses, generally about 70% of the expenses associated with the R&D credit are wages. So, as science-based service companies, a big portion of CRO expenses are wages.”
Sen. Carper noted that the average private rate of return on R&D investment is estimated to be roughly half of the average return to the broader economy. “That is why the R&D credit needs to be extended and reformed, to help ensure that companies have sufficient incentive to undertake research projects,” he said.
The bill would also strengthen the credit by increasing the rate to 25% of qualifying research investments.
James Greenwood, President and CEO of the Biotechnology Industry Organization (BIO), added his support for the bill with a statement: “By providing an incentive for investors to partner with a young research company, the COMPETE Act stimulates R&D investment at the earliest, most-critical stages of a company’s research. The R&D Partnership Structures allowed by the legislation will lead to long-term investment strategies, which are critical to the success of innovative research.”
The tax credit originally expired at the end of 2013 so Congress may end up passing just another extension of the current credit scheme.
“We expect at a minimum Congress will pass another annual ‘extender’ of the R&D tax credit and some modifications could be made there. But we think there is a fair amount of momentum for more comprehensive reform of the R&D credit in the context of making it permanent,” Lewis added.