Pharmaceutical Industry

As a result of tax breaks given to U.S. companies operating in Puerto Rico, the Department of the Treasury will lose an estimated $15 billion in tax revenues between 1993 and 1997. Throughout the 1980s, the pharmaceutical industry received a large share of such tax benefits relative to the number of jobs they created and the amount of employee compensation they provided. Industry representatives argue that other employment-related information, such as the number of jobs created in companies servicing pharmaceutical corporations, needs to be considered in evaluating the benefits provided under the Internal Revenue Code. GAO found that individual drug companies differed markedly from each other in the taxes that they saved by operating in Puerto Rico and that 17 of the 21 most prescribed drugs in the United States in 1990 were authorized for manufacture in Puerto Rico.

GAO found that: (1) the pharmaceutical industry received a large share of tax benefits from section 936 of the Internal Revenue Code compared to the number of jobs directly created and the amount of compensation the industry created; (2) tax benefits that the pharmaceutical industry received per employee were three to four times greater than those received by the industry with the next greatest amount of benefits; (3) industry representatives stated that other such employment-related information as the number of jobs created in companies servicing pharmaceutical corporations needs to be considered in evaluating the benefits of section 936; (4) individual pharmaceutical companies differed markedly in the level of taxes they saved by operating in Puerto Rico; and (5) 17 of the 21 most frequently prescribed drugs in the United States in 1990 were authorized for manufacture in Puerto Rico.