Taxing Times for French Pharma - Pharmaceutical Technology

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Taxing Times for French Pharma
As the French Presidential campaign is underway, and politicians collaborate with businesses to revive a flagging economy, the pharmaceutical industry seizes the chance to lobby for equitable taxation to give the sector a much-needed boost.


Pharmaceutical Technology Europe


One general criticism of the Promotion Tax is its lack of clarity and ambiguous wording, about which certain companies have challenged the government. For example, a number of disputes have centred on the term 'medical representatives'. In 2009, Janssen-Cilag successfully argued in court that the Tax could not be applied to medical representatives who had not yet graduated (4). The government continues to challenge this ruling, arguing that the Law did not specifically set out to exclude medical representatives who worked in the absence of any graduate qualification or diploma. It believes that professional experience should be considered in the same manner as an official qualification.

Another pharmaceutical tax (introduced by Article 12 of the law for Health Insurance Financing of 2004) is levied on sales of pharmaceutical products, and nets annual revenue from €215 million to €250 million. This tax is charged at 1%, but does not apply to exported, generic and orphan products. Since 1999, companies have also had to pay a tax on the basis of the annual increase of sales to prevent an unaffordable increase in health expenses caused by product sales. The nature of these payments is determined by confidential negotiations with the government.

Government response

The pharmaceutical companies continuing complaints against the tax system appear to be making their mark on the government, which is worried that companies are reducing their investment in the French market. In 2009, the French President, Nicolas Sarkozy, gave a keynote speech to the Health Industries Advisory Board (CSIS), in which he publicly acknowledged that healthcare expenditure could not be viewed solely on the basis of cost containment (8). The pharmaceutical industry was heartened that this might signify a shift in government attitudes to the sector, and as far as the taxation issue goes, there have been positive developments. The CSIS was set up in 2004 and usually meets under the chairmanship of the French Prime Minister, who works below the President, as an open forum for the industry and government to air their views about the operational environment.

In January 2012, the CSIS reviewed the tax system and agreed that a simplification of the various measures was required (2, 7). It recognised that the industry's views were not being taken into account, and that some of the tax provisions did not appear to align with other branches of government policy to stimulate industrial competitiveness.

The French government has been particularly keen to promote biotech SMEs and has been particularly worried that the taxation system may stifle growth of this emerging sector. After its latest meeting, the CSIS recommended that the General Inspectorate of France and the General Inspectorate of Social Affairs should examine how other countries are taxing the pharmaceutical industry and apply their findings to the French market to incentivise companies toward local investment. The audit and development of recommendations to be implemented by these bodies has been set for 2013 (7), although it is unclear whether the election will influence this timeline. The pharmaceutical industry has also complained about the changing rates of pharmaceutical taxes and hopes that the future recommendations will also feature stabilisation of the tax levels (2).

Outlook

The French pharmaceutical industry has been taking advantage of the Presidential political campaign to reiterate its calls for more favourable policies for the sector and to boost its public image following the recent Mediator scandal (1, 2, 7). To date, it has been worried by the narrow focus on cost containment by successive governments, which is most apparent in the form of 13 different taxes on the pharmaceutical sector. The pharmaceutical industry believes that encouraging pharmaceutical innovation is the best means for the government to help revive the economy, since improvements in healthcare affect the population at large.

Although the current government has altered its stance in public to become more positive about the industry, it still has to make difficult cost-cutting decisions to deal with eurozone crisis. In fact, the French Finance Minister François Baroin was quoted, prior to the election, as stating that the government would not back down from a policy of containing medical spending (2). Any incoming French government will face the same financial challenges. Since considerable revenue comes from the long-standing taxation measures, it is unlikely that reform will be quick or to the satisfaction of the pharmaceutical industry. The government dilemma is that the slowing economy has already reduced revenue from corporate sources.

Companies have warned that they may reduce their investment in France on the basis of unfavourable operating conditions. However, they face similar cost-containment pressure in other European markets as their respective governments are also dealing with the global financial crisis. They may not be able to offer sufficiently attractive incentives to prise companies away from the French market.


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