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103D CONGRESS

1ST SESSION H. R. 1588

To amend the Internal Revenue Code of 1986 to impose a windfall profit

tax on certain drugs for rare diseases or conditions if they become

excessively profitable, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

APRIL 1, 1993

Mr. STARK introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to impose

a windfall profit tax on certain drugs for rare diseases

or conditions if they become excessively profitable, and

for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. WINDFALL PROFIT TAX ON PROFITS FROM

4 DRUGS FOR RARE DISEASES OR CONDITIONS.

5 (a) IN GENERAL.—Section 28 of the Internal Reve6 nue Code of 1986 is amended by redesignating subsection

7 (e) as subsection (f) and by inserting after subsection (d)

8 the following new subsection:
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1 ‘‘(e) WINDFALL PROFIT TAX.—

2 ‘‘(1) IN GENERAL.—If—

3 ‘‘(A) there is a windfall profit on any or4 phan drug for any taxable year, and

5 ‘‘(B) any portion of such taxable year is

6 within the exclusivity period for such drug,

7 the tax imposed by this chapter for such taxable

8 year shall be increased by 75 percent of such wind9 fall profit for such taxable year.

10 ‘‘(2) WINDFALL PROFIT.—For purposes of this

11 subsection, the term ‘windfall profit’ means, with re12 spect to any orphan drug, the excess of—

13 ‘‘(A) the gross revenues from sales during

14 the taxable year of such drug, over

15 ‘‘(B) 125 percent of the sum of—

16 ‘‘(i) the cost of producing the drug

17 sold during such year, and

18 ‘‘(ii) such year’s allocable share of the

19 marketing costs of such drug.

20 ‘‘(3) NO TAX UNTIL RECOVERY OF TOTAL IN21 VESTMENT IN DRUG DEVELOPMENT.—The gross rev22 enues from the sale of an orphan drug shall be

23 taken into account under paragraph (2) for any tax24 able year only to the extent the aggregate of such

25 revenues for the taxable year and all preceding tax-
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1 able years exceed the development costs of such

2 drug.

3 ‘‘(4) OTHER DEFINITIONS.—For purposes of

4 this subsection—

5 ‘‘(A) DEVELOPMENT COSTS.—The term

6 ‘development costs’ means, with respect to any

7 orphan drug, the amount equal to the excess

8 of—

9 ‘‘(i) the sum of the qualified clinical

10 testing expenses and the qualified research

11 expenses attributable to such drug for the

12 period before the beginning of the exclusiv13 ity period, over

14 ‘‘(ii) the aggregate amount received to

15 develop such drug from Federal funds.

16 ‘‘(B) EXCLUSIVITY PERIOD.—The term

17 ‘exclusivity period’ means the 7-year period re18 ferred to in section 527(a) of the Federal Food,

19 Drug, and Cosmetic Act.

20 ‘‘(C) ORPHAN DRUG.—The term ‘orphan

21 drug’ means any drug for which an exclusivity

22 period is granted.

23 ‘‘(5) PRORATION.—If only a portion of a tax24 able year is within the exclusivity period, the wind25 fall profit taken into account under this subsection
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1 for such year shall be the amount which bears the

2 same ratio to such profit for such year as such por3 tion bears to the entire taxable year.

4 ‘‘(6) COORDINATION WITH OTHER CREDITS AND

5 MINIMUM TAX.—Any increase in tax under this sub6 section shall not be treated as a tax imposed by this

7 chapter for purposes of—

8 ‘‘(A) determining the amount of any credit

9 allowable under this chapter or

10 ‘‘(B) determining the amount of the mini11 mum tax imposed by section 55.

12 ‘‘(7) 75 PERCENT TAX TO BE EXCLUSIVE

13 TAX.—Gross income shall not include the amount of

14 windfall profit taken into account under this sub15 section for any taxable year.’’

16 (b) EFFECTIVE DATE.—The amendment made by

17 this section shall apply to amounts paid or incurred after

18 December 31, 1992, in taxable years ending after such

19 date.

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