"Big Pharma obtains massive tax benefits from their shifting of income and US jobs to low-taxed countries and US territories.
Just think about how unfair and just crazy the following situation is....A typical Big Pharma Corp does a substantial portion of its Research and Development on new drugs in the US, gets a US federal and US state income tax deduction for these R&D costs, and also a US R&D tax credit, to boot. Then after drug discovery, it transfers the intellectual property (the drug compound) to a US territory or foreign tax haven, like Puerto Rico and Ireland, where the drug is manufactured, and thus the massive amount of profit is recognized in this tax haven. And then a good chunk of the manufactured drugs are sold to US customers, some of whom even live very close to where the R&D was performed on the drug in the first place. What a Roundhouse transaction!
But after this Roundhouse transaction goes full circle, when Uncle Sam and the US States put their hands in their pockets, they find no corporate income tax receipts. In fact, they both gave income tax deductions to the drug company for the R&D costs, and also granted R&D tax credits, but tax havens like Puerto Rico and Ireland are where the massive profits from the drug are located, and income taxed at an incredibly very favorable income tax rate, and particularly so in Puerto Rico.
And now these Drug companies are lobbying the US heavily to be able to repatriate, at a very favorable US tax rate, all of their very low-taxed foreign earnings, which are now parked in their foreign tax havens.
Gosh, I call this just flat out piling on. The US Federal Government and the US States are under severe financial stress and they let these Big Drug companies get away with avoiding so much in corporate income taxes."
But it's much worse than that.
The Big Pharma Corp wants to maximize its pretax profit in places like Puerto Rico because its pretax income earned in Puerto Rico is pretty much tax free.
So how does it do that?
You go where the money is and for manufacturing companies like Big Pharma it's in employee costs and employee benefit costs. Thus if they want to maximize their worldwide profit, they not only shift income to tax havens like Puerto Rico but they pay their Puerto Rican employees and contract workers as little as possible to further increase the pretty much tax free income they generate in Puerto Rico.
And the US Congress passed legislation which requires the US Big Pharma Corp to pay no US income tax currently on this income shifted to Puerto Rico.
But it's not just Big Pharma. The Medical Device Industry also has a lot of their manufacturing done in the lower-wage Puerto Rico tax haven. And so do US Companies in other industries. Just to name two.....Microsoft and Hewlett Packard.
So why is the income shifting to Puerto Rico maneuver which has occurred for decades a main cause of the Puerto Rican Government defaulting on its debt?
Because if instead of paying these Puerto Rican employees very low wages, Big Pharma Corps, and other US Corps in other industries using this same maneuver such as those in the Medical Device Industry, paid their Puerto Rican employees a living wage, the Puerto Rican government would be substantially more financially secure due to the additional income taxes and employee taxes it would collect on the much higher wages paid. Additionally, these higher wages would stimulate consumer spending in the very depressed Puerto Rican economy and thus also enhance tax collections even more.
In the most recently reported May 2015, the median hourly wage in Puerto Rico was $9.61, only 55% of such median hourly wage in the US of $17.40.
Also in the most recently reported May 2015, the mean hourly wage in Puerto Rico was $13.56, only 58% of such mean hourly wage in the US of $23.23.
Puerto Rico has an unemployment rate of 11.7% in the most recently reported March 2016. On the other hand, the US State with the highest unemployment rate in March 2016 is Alaska at 6.6%
So just who are some of these Big US Corps, mostly in the Pharmaceutical and Medical Device Industries, getting these huge annual US tax breaks and at the same time not paying the Puerto Ricans laboring on their behalf a livable wage? A very quick review of Big US Corp income tax footnotes contained in their audited financial statements tells the story here of international tax breaks just for one year 2015.....and there are so many others not shown below.
|2015 US Tax|
|Pharmaceuticals Mentioning Puerto Rico|
|Johnson & Johnson||NJ||2,956|
|Bristol Myers Squibb||NY||535|
|Medical Devices Mentioning Puerto Rico|
|St Jude Medical||MN||232|
|Information Technology Mentioning Puerto Rico|
|Hewlett Packard Enterprise||CA||788|
Also, the below article sheds some light on how Microsoft gets massive tax benefits in Puerto Rico despite having so few employees in Puerto Rico.