Tax Credits Proposed for Puerto Rico Pharma

A bipartisan group of House members have introduced legislation that would provide investment tax credits to encourage the movement of pharmaceutical supply chains back to territories like Puerto Rico and Guam from China.

The Supply Chain Security and Growth Act is sponsored by House Ways and Means Committee members Reps. Nicole Malliotakis (R-NY) and Bill Pascrell (D-NJ), along with Gus Bilirakis (R-Fla), Nydia Velázquez (D-NY), Mike Lawler (R-NY) and James Moylan (R-Guam).

The Bill states: The critical supply chains reshoring investment credit is an amount equal to 40 percent of the qualified investment with respect to any critical supply chain facility placed in service during such taxable year."  

“Right now, the lion share of our active pharmaceutical ingredients are being manufactured in Asia, predominately China, posing a severe threat to our medical supply chains and national security,” Ms. Malliotakis said.

“Our legislation seeks to incentivize manufacturers to near shore their facilities to friendlier locations, such as Puerto Rico, to not only reduce our reliance on foreign nations and protect Americans from life-threatening drug shortages, but promote American jobs and economic development in our US territories.

Puerto Rico is the top U.S. pharma exporting region, producing nearly double that of the next closest regions, Indiana and California. In addition, 15 of the top 20 manufacturers of class 3 medical devices are located in Puerto Rico.

Pharmaceutical companies originally came to Puerto Rico in the late 1960s and 1970s to take advantage of the now-expired federal tax incentive known as Section 936. This incentive allowed U.S.-based manufacturers to send all profits from local plants to stateside parent plants without having to pay any federal taxes.

"Moving our critical supply chains will allow us more control over production processes and quality standards, and more opportunities to invest in and manufacture materials for the pharmaceutical, semiconductor and aerospace sectors.”

Currently, 252 drugs, including antibiotics and chemotherapies, are facing shortages in the United States with no pattern of predictability, while 80 percent of all active pharmaceutical ingredients for essential medicines in the United States have no domestic manufacturing source, according to bill sponsors.

Not just for Pharma

The bill provides for tax breaks for investing in a broad array of pharmaceuticals and medical devices, as well as "artificial nanomaterials" and " Aerospace Equipment as defined in NAIC 3364 (aerospace manufacturers and the conversion and overhaul of aircraft and propulsion systems in factories).

Guam wants a role

"I have spent much of my time in both the Guam Legislature and now in Congress working to bring back critical industries to Guam," said Delegate James Moylan. "The Supply Chain Security and Growth Act of 2024 is a practical measure which would offer tax incentives to important industries such as pharmaceuticals, semiconductors, and aerospace.

"I look forward to seeing this spur investment in Guam and the Lower 48 to development of our own domestic pharmaceutical and semiconductor industries."