Moves by US president Donald Trump’s administration to force pharmaceutical companies to lower drug prices in the US would dramatically lower Irish corporation tax receipts, new research has warned.
However, the impact would not feed through to the exchequer until at least 2027, as corporation tax is paid a year in arrears.
The paper by Irish Times columnist Prof John FitzGerald examined the prospects for Ireland’s significant pharmaceuticals sector in the wake of the US decision to impose a 15 per cent tariff on all medicines imported into that country.
It also considered how any further US policy changes might impact the industry in Ireland and the broader Irish economy.
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Published alongside the Economic and Social Research Institute’s (ESRI) quarterly economic commentary, it noted that the imposition of tariffs has serious implications for the Irish economy. But it warns that worse could be yet to come.
In the short-term, the impact of tariffs is likely to be manageable with much of the increased cost paid either by US patients or their healthcare providers as the drugs produced in Ireland are essential to treat specific diseases and the pharma companies making them are, in many cases, the monopoly provider of particular drugs, the report said. It expects companies will also absorb some of the tariff pain “resulting in a small reduction in profits”.
“There remains the threat of further US policy action to either cut US pharmaceutical prices or to force firms to source a greater share of their sales in the US from production in the US,” Prof FitzGerald wrote.
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“If the US Government forced a major reduction in the price of brand-name drugs sold in the US, even without a relocation of production to the US, the profitability of the many US firms operating in the sector in Ireland would be greatly reduced. In turn, a big fall in the sector’s profits would impact heavily on their corporation tax payments in Ireland,” he said.
The exchequer has relied heavily on windfall corporation tax payments from the pharma and tech sectors in recent years to offset spending growth that is running ahead of other tax receipts.
Any move to relocate production to the US is a longer-term risk to the economy, Prof FitzGerald said.
[ Pharma companies unprepared for production shift amid US tariffsOpens in new window ]
“Unless there is major spare capacity in the US pharmaceutical sector which seems unlikely, relocating from Ireland to the US would also take time, requiring substantial new investment by pharmaceutical firms,” he noted.
US and international firms have announced multi-billion dollar investment plans for the US since president Trump returned to office but it would be some years before that led to plants entering production.
Relocation would see the profits associated with product from those manufacturing plants sold at the higher prices prevailing in the US being subject to higher rates of tax in the US.
“Remaining production in Ireland for the rest of the world would have much lower profitability, and the corporation tax paid in Ireland by the sector would fall dramatically,” Prof FitzGerald said.
Prof FitzGerald said it would be important for the European Union to take retaliatory action if Big Pharma was ordered to manufacture for the US market only in the US, though the EU has been plainly reluctant to proceed down the route of retaliation to US measures thus far.
The ESRI report said the impact on employment in the sector is likely to be more modest, at least in the short term, as the bulk of the output of the Irish pharma industry by quantity goes to countries other than the US. Longer term, any substantial relocation of production to the US could ultimately “seriously impact on employment”.
Economists have warned Government consistently against relying on the current elevated levels of corporation tax receipts continuing into the future.
The ESRI report said that while it may take a number of years to play out, “further substantive action by the US, affecting the profitability of the US-owned pharmaceutical sector in Ireland, could have a major impact on corporation tax revenue”.
