Tax Reforms Introduced in House to Improve Global Competitiveness of U.S. Life Sciences Industry
In 2004, the biotechnology industry generated a total net loss of $6.4 billion, an 18 percent increase over 2003. Despite this fact, research and development expenditures increased by 15.7 percent. For every $1 of sales in 2004, there was roughly 60 cents of R&D spent by biotechnology companies.
“Attracting sufficient equity capital to fund critical research is often a challenging task for the industry,” Greenwood said. “This problem is exacerbated by an outdated tax regime that was largely set in place well before the advent of the modern biotechnology industry. The federal government should lead the effort in providing favorable tax and regulatory environments that will create incentives for economic development and job creation in the life sciences sector similar to the ongoing efforts at the state level.
The U.S. Healthcare Technologies Competitiveness Act updates current corporate and investor tax laws, and provides investment incentives. Here’s a look at some of the highlights:
· Net Operating Loss Companies – Ensures that loss biotech and medical device companies raising new research capital or pursuing business-driven mergers with other loss biotechnology companies are not subject to the severe Net Operating Loss (NOL) limitations of Section 382 of the Internal Revenue Code.
· Research and Development Tax Credit -Modernizes the R&D credit by adopting the Alternative Simplified Credit calculation, allowing the full credit for contract research payments and basic research payments, and making the credit permanent.
· Orphan Drug Tax Credit – Amends the Orphan Drug Credit to allow expenditures incurred after an application is submitted, but before FDA orphan designation, to qualify for the tax credit.
· Medical Innovation Tax Credit for Clinical Trials – Provides a 40 percent credit on qualified medical research expenses expected to lead to the development of a medical product performed at medical schools, teaching hospitals and NIH designated centers.
· Incentives for Bio-Science Research Parks – Provides a 20 percent credit and equipment expensing for research performed in state bio-science parks.
· Capital Gain Rollover – Permits investors to defer tax on the gains from sale of a life sciences company stock where the proceeds are reinvested in another life sciences company within 60 days.
BIO represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and 31 other nations. BIO members are involved in the research and development of healthcare, agricultural, industrial and environmental biotechnology products.