Yesterday the long-awaited Tax Reform was introduced as a House Bill, H.R. 1. Most notably the proposed Tax Reform would drop the corporate tax rate from 35% to 20%. Here is a quick checklist on some of the provisions and omissions impacting our community.
- R&D Tax Credit was preserved but not expanded
- Reduced tax rate for repatriated earnings: 12% on cash returns and 5% on non-cash assets
- New tax for multinational companies: minimum global tax of 10% on certain foreign earnings that American companies earn overseas.
- An excise tax that would apply a 20 percent on payments made by a U.S. entity to a related foreign entity. To avoid the excise tax on gross payments, the foreign payee can elect to be treated as having payments effectively connected with a US trade or business (“ECI”).
- Net interest expense would not be deductible in the current year to the extent it exceeds 30% of a company’s adjusted taxable income, effective 2018. Excess interest expense could be carried forward 5 years.
- Net interest expense of a U.S. corporation that is a member of an international financial reporting group would be limited to the extent the U.S. corporation’s share of the group’s global net interest expense exceeds 110% of the U.S. corporation’s share of the group’s global EBITDA. This would apply to global groups with receipts in excess of $100 million.
- Incentives for pre-revenue innovation were not included: See Congressman Schneider Introduces Legislation to Promote Investment in Life Sciences Companies
- Elimination of the Orphan Drug Tax Credit (ODTC): supports research for rare diseases.
The elimination of the ODTC would severely impact our industry’s ability to bring life-saving treatments for rare and devastating diseases to patients.
Nearly 30 million Americans are impacted by rare diseases. Of the 7,000 rare diseases, only 305 have an approved treatment option.
Prior to the enactment of ODTC, the limited patient population of an individual rare disease inhibited investment into research and development of therapies. According to an Ernst & Young study, without the ODTC nearly 33% of the orphan drugs developed over the past 30 years would not be available to patients today. The ODTC incentives investment in research and the development in products that would otherwise not be commercially feasible, and would disproportionately impact smaller drug companies who depend on these tax breaks.
iBIO joined 41 of our sister organizations from the Council of State Bioscience Associations in a letter supporting the Orphan Drug Tax Credit. The letter was sent to Speaker Ryan, Majority Leader McCarthy, Chairman Brady and the Members of the House Ways and Means Committee on October 31, 2017. Click Here to read the letter.
The house bill will likely be slightly revised, we will provide updates as they become available.