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Mar 30, 2012

Report Urges EU Nations to Boost R&D Through Tax, Regulatory Policies

    European nations must do more to translate biotechnology discoveries into new businesses, new products, and more jobs as the EU considers several major regulatory proposals this year, according to a new report.

    "Europe indeed has the potential to be a world leader in the field of biotechnology,” Ernst & Young and Europa Bio concluded in their report, “What Europe Has to Offer Biotechnology Companies: Unraveling the Tax, Financial and Regulatory Framework.”

    “Already there are many tax, financial, and regulatory incentives for established companies as well as start-ups operating in Europe. The excellent research base and skilled labor-force on offer throughout many EU member states is also of great benefit to the biotechnology sector. However more needs to be done by industry and regulatory authorities alike,” the report added.

    The report details the tax, regulatory, and economic development policies for biotech businesses, especially small- and medium-sized enterprises (SMEs) in 16 EU nations: Austria, Belgium, Denmark, France, Germany, Hungary, Ireland, Italy, The Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

    “Our initial focus is on those Member States of the EU with the most established track records in commercializing biotechnology,” the report stated. The report examined the tax, financial, and regulatory incentives provided by governments in 16 European nations to biotech investors, entrepreneurs, and researchers, as well as the challenges facing small- and medium-sized enterprises.

    One example cited by E&Y and Europa Bio: The UK plans to implement a reduced 10% corporation tax rate to medicines and other products derived from qualifying IP through the new Patent Box law. But the U.K. is not alone in offering incentives labeled as “patent boxes”:

    • Spain exempts from taxation 50% of gross incomes arising from the transfer of the right to use certain qualifying intangible property (IP) rights, with an upper limit of up to six times the cost of the assets. Expenses incurred in developing these rights are fully deductible. Qualifying assets include patents, models, plans, or information concerning industrial, commercial, or scientific experience.
    • Belgium’s Patent Box or “Patent Income Deduction” allows 80% of gross income of a qualifying patent to be deducted from the net taxable basis of a Belgian company, or the Belgian branch of a foreign one. The result is a maximum effective tax rate of 6.8% or lower. Intellectual property (IP) must be developed by the companies themselves or to those acquired and licensed by them; acquired or licensed patents must be improved in an “R&D branch” in Belgium or abroad; and patents must not have been commercialized before 2007.

    And in 2010, The Netherlands converted the “Patent Box” law it introduced in 2007” into an “Innovation Box,” under which net income from qualifying IP is effectively taxed at a rate of 5% by reducing the tax base by about 80%. The 5% rate applies only to the extent that net earnings derived from self-developed intangible assets exceed development costs. The taxpayer must have obtained a patent and meet requirements that include ownership and development of intangible assets by (i) the Dutch taxpayer, (ii) through contract research or (iii) through a cost contribution arrangement.

    Also included are overviews of the pharmaceutical industry and agricultural biotech as well as a broader outlook for biotech in Europe, including the challenges facing small- and medium-sized enterprises. Those challenges include the regulatory frameworks for reviews and approvals of final products and measures designed to accelerate development for early-stage companies.

    For example, according to the report, the European Parliament will review this year a simplified framework for clinical trials designed to enhance Europe’s attractiveness for clinical research: “It will allow faster access to innovative treatments for patients, reduce the administrative burden, and cut costs for public and private sector researchers as well as for member states."

    “What Europe Has to Offer Biotechnology Companies” noted that the EC will take up vice president Antonio Tajani’’s “Process on Corporate Responsibility in the Field of Pharmaceuticals,” a framework of rules designed to boost transparency and ethics in the sector; promote pricing and reimbursement policies that increase access to medicines in Europe; and increase access to medicines in developing countries, focusing on Africa.

    Biotechs will be among businesses to be affected by new transparency and public procurement legislation to be considered in the legislative processes of the European Parliament and the Council of the EU. The transparency rule would direct EU nations to clarify their national pricing and reimbursement regulations and comply with statutory timeframes for reaching decisions.

    Under the public procurement measure, EU contracting authorities will be allowed to exclude from consideration for contracts above €5 million tenders comprising a significant part of foreign goods and services not covered by existing international agreements. The EU would restrict access to its market for nonmember countries that practice “repeated and serious discrimination against European suppliers.

    Another priority for the public procurement review, the report said, will be persuading more of Europe’s 23 million SMEs including the approximately 2,000 biotech SMEsto participate in public tenders. The upcoming review received support at a March 28 meeting in Brussels of an advisory group to the EC, the Network of SME Envoys.


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