Belgium to reduce taxes for pharma companies based on r&d spend

Belgium, which is trying to get back into favour with the pharmaceutical industry, is to set up a mechanism to reduce taxes for pharma companies based on their r&d investment.

This new mechanism, which should eventually allow the companies affected to claw back a total of Euro 35m, was designed not to conflict with European Union law, according to Belgian health minister Rudy Demotte.

The new law, which will be published within the next few days, is based on the crossover of two distinct elements. The first is that tax due on revenue generated by sales of reimbursed medicines will be decreased by 1% of the amount that the company has dedicated to r&d worldwide. The minister explained that this was due to the fact that 1% of research worldwide was carried out in Belgium.

Currently, pharma companies present in Belgium must pay taxes amounting to about 10% of revenue.

The second element stipulates that this reduction can never be more than the total due in tax and cannot be higher than a certain percentage - which will be determined subsequently by decree - of the 'added value' that the company has made in Belgium during the financial year preceding that in which the tax is due.

This 'added value' - defined as the difference between Belgian sales and costs - has 'the great advantage of reflecting a company's real activity in the country in a quantifiable and objective way,' a ministry source said. It thus avoids the possibility of manipulating revenue, notably by accounting manoeuvres between Belgian and non-Belgian subsidiaries of a single company.

The new legislation also provides for tax reductions for companies that have reduced their marketing expenses compared with previous years, and specific measures to encourage pharmaceutical sector SMEs. The health minister said that this measure does not conflict with EU competition law, and particularly that it cannot be interpreted as illegal state aid.

The new law thus does not specify any condition of nationality or place of establishment. Nor does it demand that the research be carried out in Belgium. The only criterion, which appears to be a very broad one, is that the company carries out research on a worldwide level.

The ministry is working on the principle that all pharma companies that contribute to the Belgian health insurance budget receive the same treatment. However, 'the fact that companies which - in accordance with their own operational and fiscal reality - contribute less to the system as a whole might be able to deduct less from their taxes in absolute terms is not an infraction of article 90 [of the EC treaty, on tax provisions and state aid]', the ministry said.

'We are far from the direct aid for innovation that other countries offer,' a health ministry source said, citing the UK's Pharmaceutical Price Regulation Scheme (PPRS) and Italy.

The principle of the PPRS basically establishes differential treatment for medicines price fixing between a company that simply markets its products in the UK and one that invests there. The EU competition directorate has never found fault with this system, which has been in existence for many years.

In Italy, the health ministry has decided to reward pharma companies' investment by granting them better prices for their innovative medicines. In March Sanofi-Aventis was the first to benefit from this Italian generosity, following an investment of €200m over three years.