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.
Apr 30, 2012


Nathan Jessop
The French pharmaceutical sector is a recognised force within the healthcare system. As well as representing a source of medicines, it is a major employer and contributor to the economy. However, the pharmaceutical industry has grown increasingly concerned that its contributions to the nation are being taken for granted and has been using the French Presidential campaign as an opportunity to highlight its views.

On 1 March, the Alliance for Research and Innovation in Health Industries (ARIIS) issued a petition asking all presidential candidates to support the industry in the national interest (1). ARIIS represents a collaboration between different companies in the healthcare sector, pharmaceutical and diagnostic, to make the sector a greater priority for the government. Since political candidates are engaging with French businesses about how to revitalise the faltering economy, the pharmaceutical industry hopes that its views will make an impact. Even the Socialist party, which has argued for more intensive cost cutting in the healthcare sector, has met with representatives of the pharmaceutical industry.

Unfairly targeted?

Pharmaceutical companies operating in France have long expressed concern that they are being unfairly targeted by the government as part of its cost-containment drive to reduce healthcare expenditure. According to the French pharmaceutical industry association, Les entreprises du médicament (LEEM), which represents more than 270 pharmaceutical manufacturers nationally, price cuts in 2011 cost the industry €1 billion (2). It also suggested that cost-containment policies dissuade companies from making further investments in France and that companies are already looking at cutting jobs – although it has declined to name which companies.

A longstanding complaint has been that, over the past two decades, a series of taxes have been introduced with a specific focus on the pharmaceutical industry. LEEM has calculated that these measures account for 5.5% of annual turnover, in addition to other burdensome levies imposed upon all industrial sectors (2, 3). Officially, the taxes are described as "contributions", and were introduced to reduce the French health system's huge deficit, for which the pharmaceutical industry was partly blamed because of high product prices (4). Pharmaceutical companies have rejected such accusations, pointing out that since they must negotiate in advance with the government about product pricing, the government is fully aware of, and involved in, the decision-making. The industry believes that the government should pay more attention to the non-pharmaceutical costs within the healthcare system.

Pharmaceutical-specific tax rates have increased steadily, and are likely to continue to do so for the foreseeable future. They secure substantial revenue for the government, which is struggling to deal with the eurozone crisis (highlighted by the January 2012 loss of its top AAA credit rating from Standard & Poor [5]). These types of industry-focused taxes are likely to continue in a bid to avoid imposing tax rises on the general population. Currently, 13 pharmaceutical-specific taxes generate vital revenue for the government, but are an irritant to the industry since they can represent between 50% and 100% of companies' annual corporate income tax (4, 6).

The Promotion Tax is a tax on promotional expenses for medicines that have a marketing authorisation in France and are included on the official list of reimbursed medicines. As the government reimburses much of the product costs in France, there has been a steady drive to curtail the promotional activities of pharmaceutical companies, with the costs associated with medical representatives, such as salaries, being a favoured tax target. Initially, the Promotion Tax rate was set at 5%, but it is now charged at 19–39%, depending on the nature of the company's promotional expenses. Currently, it brings in between €130 million and €165 million per year for the government. The types of activities deemed eligible for the tax are frequently disputed between the industry and the government. For example, the government stated that all advertising would be subject to Promotion Tax and indicated that this even included pens and giveaways bearing logos and trademarks at conferences (4).

Not surprisingly, the level of promotional activities has sharply declined because of a combination of government pressure and company desire to minimise their exposure to such taxes and other restrictions. Recently, a proposal to allow limited television advertising for over-the counter medicines was rejected at a joint industry–government forum, as the two parties could not agree about how such measures should be governed (7).