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U.S. – Korea Pharma CEO ForumChristopher D. Lloyd

November 4, 2010

Economic Considerations for

U.S. Operations

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Presentation Overview

• Federal, State, and Local Government Structure• Employment issues• Incentives – How to Lower Your Costs

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Federal (US) Government

• FDA regulation• Customs, tariffs, and duties• Corporate income tax (15-35%)• Employment related taxes (Social Security and

Medicare)• Employee income tax withholding• Intellectual property (patents, trademarks,

copyrights)• Worker safety• Environmental permitting• Interstate transportation (road, rail, air, sea)

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State Governments

• State corporate income taxes (0%-10%)• Employee related taxes (unemployment insurance,

workers compensation)• Employee income tax withholding• Environmental permitting and worker safety (in

cooperation with federal government)• Sales and use tax• Transportation• Higher education (Universities and community

colleges)

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Local Governments

• Property taxes (real property and equipment)• Business license taxes• Building inspection and permits• Utility services• Police, fire, rescue• Education (K-12)• Local transportation

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Employment Issues

• Minimum wage requirements• Pension contributions• Health insurance• Vacation and other employee benefits

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Right-To-Work vs. Union Workforce

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Reducing Federal Tax Expenses

• Foreign tax credit• Foreign trade zones• Net operating loss carry-forwards• Accelerated depreciation• Research and development tax credits• Tax credits for hiring targeted employees

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Reducing State Tax Expenses

• Corporate income tax credits for job creation• Tax credits/grants for equipment investment• Tax credits for research and development• Start up investment funds/angel investor tax

credits• Funds for site development and construction• Funds for training• Manufacturing-related tax abatements and

exemptions

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Reducing Local Tax Expenses

• Property tax abatements and exemptions• Funds for utility infrastructure• Reduction of permit and license fees• Funds for site development• Low cost/free land• Job creation and investment grants

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Incentive Negotiation Basics

• Federal programs are fixed in law – little or no negotiation

• State and local programs must be authorized by the elected legislative body

• Tax issues are typically not negotiated• Grants are negotiated

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Incentive Negotiation Strategies

• Understand barriers to successful project development and seek to lower those costs

• Process starts with a site search to identify potential plant locations

• Narrow site list to 3-6 sites based on logistics, access to employees, access to suppliers

• Initiate discussions with state and local governments

• Interstate competition is important to negotiating the best possible incentives package

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Incentive Negotiation Strategies

• Make no commitments to a site or announcements until deal is negotiated

• Do not start with the chief elected official – start with staff

• Understand the 10-20 year costs of operating in a specific location

• Don’t be fooled by large tax credits• Cash is king!

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What Will Governments Expect

• They get the “right” to announce the project

• Performance agreements and clawbacks for failure to meet commitments

• Active participation in the community

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Business Expansion | Federal Public Affairs | Strategic Communications & Grassroots MobilizationState & Local Government Affairs | Emerging European Markets

Atlanta • Charlotte • Charlottesville • Chicago • Columbia • Norfolk • RaleighSpringfield • Tyson’s Corner • Washington, D.C. | Bucharest, Romania

www.mcguirewoodsconsulting.com

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