Medical device makers face another tax fight in Puerto Rico

healthcare and money

Puerto Rico officials backed down from a reduction in the country’s medical device tax, planning instead to extend a temporary increase for another year.

The 4% tax, originally imposed in 2010, was supposed to shrink each year and drop to 1% in 2016. Treasury officials instead announced plans to seek an extension of the 4% tax rate through 2017, a move that U.S. medical device lobby group AdvaMed "strongly opposes."

"Raising taxes on a key manufacturing partner will not improve Puerto Rico’s economic recovery," AdvaMed president & CEO Stephen Ubl said in prepared remarks. "Device manufacturers are already struggling to address a challenging international business climate, significant cuts to Medicare programs and, of course, the U.S. medical device tax which went to in effect in January. This additional burden will force companies to make tough choices about cuts in R&D, employment and possible significant delays in capital improvements."

Puerto Rico Gov. Luis G. Fortuño signed Law 154 into effect Oct. 25, 2010, creating a 4% tax on businesses domiciled off the Caribbean island, which is a U.S. commonwealth. The move prompted immediate responses from lobbying groups for healthcare-related industries, which have a significant presence in Puerto Rico.

AdvaMed’s Ubl spoke out against the tax at the time, noting that the measure negatively targets an industry that represents 13% of the country’s manufacturing jobs.

"I am very concerned that this tax sends a very bad message to our members and will significantly impact device manufacturers’ ability to maintain and grow their manufacturing facilities on the island," Ubl said.

It was more bad news for medical device makers, which began tallying their 1st U.S. medical device tax obligations last month. The industry has been battling a 2.3% sales tax that was written into President Barack Obama’s Affordable Care Act as part of larger efforts to fund healthcare reform.

The 1st payments for the U.S. device tax were due January 29 and should represent 2.3% of applicable sales from January 1 to January 15, according to IRS regulations released late last year. The federal tax agency agreed to waive late fees for companies who miss early due dates.

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