Tax Competition in Life Sciences – How Does the UK Shape Up?

In this article originally published in European Pharmaceutical Review, Richard Turner and Lawrence Wild from the European Tax Advisory team consider the current tax competition environment within the UK for the Life Sciences industry, and how this compares to other competing international tax regimes.

This article summarises the recent measures revealed by Rishi Sunak in the 2020 Budget with a focus on those most relevant for the Life Sciences industry, and considers current industry sentiment around whether the Chancellor went far enough to create the momentum needed to reach the target that research and development will comprise 2.4% of GDP in the next seven years.

In terms of measurement, the Tax Foundation annually publishes the Tax Competitiveness Index across OECD countries, which is based on three categories: tax rate, tax relief on expenditure and incentives/complexity. At present, within the 2019 ranking the UK appears 15th out of 36 behind Ireland and Switzerland.

Yet in terms of influencing investment decisions, this article also explores the challenges around making the right comparison between R&D tax regimes, which is difficult particularly as they are not designed and awarded on a consistent basis. Factoring in tax relief on the investment, loss utilisation rules, R&D and patent box incentives where applicable can create a much better decision tool, alongside transfer pricing considerations around how affiliated companies are likely to trade with each other under the arm’s length principle.