US tax policy changes see doubling of key pharma roles
Dr van Egeraat told overseas academics attending an economic conference yesterday in Maynooth that Ireland’s jump from 400 to 800 process development roles was impressive.
This 100% high-end gain compares to 35% total employment growth for the 76 pharma firms in his 2000 to 2006 study period.
However, Dr van Egeraat links these Irish research jobs gains to the mid-1990s introduction of cost-sharing arrangements in the US. This legislation allowed US multinationals to shift some profits to subsidiaries in jurisdictions with a lower corporation tax rate than the US, once research work was taking place in that second country.
Dr van Egeraat said: “As the costs are shared, the revenue/ profits of developing IP may also be shared. This provides an instrument to multinationals to shift some profits to subsidiaries in jurisdictions that tax at a lower rate than the USA, and can result in a significant reduction in a company’s global effective tax rate.
“Typically a cost-sharing arrangement involves a buy-inpayment where the Irish subsidiary pays the parent company for the value of the pre-existing intellectual property. In theory, this buy-in payment should be a fair reflection of the value of the IP transferred. But the system is susceptible to abuse and pharma firms are widely believed to under-value the buy-in payments.”
He noted Ireland also benefited from other external factors. These included cost-cutting measures forced upon multinationals by the rise in generic drugs.
These forced big pharma firms to speed up their research processes to maximise the head start afforded them under patent protection.
Dr van Egeraat also cited a shift from “fat pharma” to “lean pharma” as big companies centralised their EU subsidiaries into one central base, with Ireland being the most tax-efficient option.
The abolition of tariff barriers governing transport between EU states has also benefited Ireland, with US multinationals dropping their former practice of having a base in virtually every EU state.
Dr van Egeraat cites the Wyeth operation based in Newbridge, Co Kildare, which grew from the consolidation of 13 EU-wide operations.
He welcomed the fact that most of the 800 process development roles were third-level graduates, with 30% PhDs, 19% masters and 46% primary degree holders. However, the Irish-based work is primarily in phase three clinical trials, with the main brainwork being completed back in the US.
Dr van Egeraat said: “If you look at the scope of the process development work here, Ireland is involved in the last stage of the cycle, the phase three clinical trials.
“They can’t really go back at that stage, they are just conducting trials on the viability of the product. At that stage, the hard thinking has already been done.
“These stages can involve high quality activities, and Ireland has made great strides forward, but Ireland also needs to soften its focus on local factors which dominate current regional studies.”
Dr van Egeraat cited Ireland’s minimal taxes on patent royalties and intellectual property, as well as the 12.5% corporation tax rate. He said the Irish tax environment and favourable external shifts have played a critical role in Ireland’s process development growth.
“Most plans for decentralisation of research and development emanate from the corporate HQ,” he said. “However, the Irish Government and the IDA have their eyes on the ball and they reacted to these new opportunities.”
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