Ronald Reagan talks about his tax reform policy at an event in 1985. After this reform, the US tax code remained largely unchanged until late 2017. Image: mark reinstein/Shutterstock
From Brexit to US tax reform, to slow and steady progress in the EU, Jean Delaney breaks down the big concepts in tax impacting the pharma sector.
In the world of tax, there are constant shifts in the landscape. Every year there’s a new Budget, while long-term plans and reforms eventually grow from concept to implementation. However, the more recent shifts in tax internationally read more like an earthquake than the slow movements this sector is accustomed to.
Even though US tax reform was building up for about 15 years, many tax professionals in the US would have bet against it being fully realised by late 2017. Nothing serious had been done to the US tax code since 1986 and then a 500-page tax plan was reportedly given to lawmakers within hours of a vote on legislation.
“It’s a biggie of a change,” PwC Ireland tax partner Jean Delaney summed up.
Delaney has a career in tax spanning 30 years and, in all of that time, US tax was largely unchanged. Now, she anticipates “seismic changes” as new guidelines and regulations get clarified by practice.
While US tax reform’s shift to reality was at least on the cards, there have been more surprising and dramatic developments of late. “Brexit kind of came out and bit us all,” said Delaney. “None of us were particularly expecting that.”
But, while Delaney said there’s “lots to do” on both US tax reform and Brexit, looking into 2018 she believes the European Union (EU) is the space to watch.
When it comes to shaping tax policy across member states, the EU moves at a civilised pace, and changes tend to come into effect following four to five years of discussion and preparation. But that final push from concept to implementation will always have an impact.
“If you look at where you would expect any kind of change in policy or possible shift, the European Union is the one to watch, I think, for the next couple of years really, as they wrestle with digital business as they see it and what are the implications of that,” she said.
In terms of communicating all of these changes in tax to other sectors, Delaney said: “We’re really anxious that the business [world] in Ireland understands what the moving parts are.”
Jean Delaney, tax partner and pharmaceutical and life sciences leader, PwC Ireland. Image: PwC Ireland
What does this mean for the pharma industry?
With that in mind, and in her role as pharmaceutical and life sciences leader at PwC Ireland, Delaney will host a workshop during BioPharma Ambition, shining a light on these big concepts and helping to demystify tax for the biopharma industry.
While EU policies centred on online business might not sound relevant to the pharma industry, she advised that its impact can produce ripples in other industries.
“I don’t think you’ll see the pharma industry necessarily at the forefront of dealing with those changes, but it may produce shifts in the whole concept of when do you get taxed and how much you get taxed on in any particular country. And, once people start messing with those big concepts, you tend to have implications for all industries, so they’ll need to watch that,” she said.
On the Brexit side of things, Delaney and her colleagues at PwC have been doing a lot of work in line with the Irish Pharmaceutical Healthcare Association and BioPharmaChem Ireland on the effects this can have on the pharma supply chain, regulation system and other practicalities. These conversations can guide these organisations on the assumptions they should use in planning toward March 2019.
And then there’s the situation across the Atlantic, where many major pharma companies are headquartered.
This time last year, Delaney explained, Ireland’s 12.5pc tax rate would compare to about a 39pc rate in the US (based on a 35pc federal rate plus local state tax of roughly 4pc). In the same comparison a year on, the stakes have changed significantly. The US rate has dropped to an approximate 25pc including state tax, and when that comes into focus alongside other factors, there are ramifications that can influence major decisions, such as where a new facility will be located.
“That’s very simplistic but that’s a pretty dramatic change. And, when you put those through a spreadsheet with a lot of numbers about cash flows and profit and everything else, it can make a significant difference,” said Delaney.
Broadening the conversation
So, while the headline figures focus on a dramatic tax drop in the US, there are many other factors – R&D tax credits and the process of taxing income generated abroad, for example – that all have to weigh up in the final decision for an organisation’s particular goals and preferences.
The purpose of the PwC tax workshop, Delaney explained, is not only to provide expert guidance for those in the finance department, but also to help their peers understand the big picture and facilitate conversations between these divisions.
“It’s like everything. There are some basic concepts that you need people to get a grip on. The detail can kill you, but that’s why you have tax people in your organisation. They worry about the detail,” she said.
Jean Delaney and her colleagues Susan Roche (international tax director, PwC Ireland) and John O’Loughlin (customs and international trade leader, PwC Ireland) will conduct the workshop ‘Tax : Everything you wanted to know but were afraid to ask’ at BioPharma Ambition, a two-day event on 21 and 22 February in The Printworks, Dublin Castle.
President Ronald Reagan talks about his tax reform policy at Gordon Tech High School in Chicago. Image: mark reinstein/Shutterstock
