Bay Area Practitioners Say Focus on U.S. Outbound Intangibles Transfers Is Misguided

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

By Alex M. Parker  

Sept. 20--A group of San Francisco tax practitioners--all with firms in tech-heavy sectors--expressed significant skepticism about legislation aimed at curbing so-called tax evasion being considered on Capital Hill.

Speaking at a panel Sept. 19 at the annual American Bar Association Section of Taxation Fall Meeting in San Francisco, several practitioners questioned some of the basic premises of the current discussion on tax evasion--including the idea that the primary issue today is valuable intellectual property being transferred outside of the United States.

“I'd say roughly half of our R&D efforts are outside of the U.S.,” said Alan Sankin, vice president tax and treasurer, with Dolby Laboratories Inc.

Sankin noted several factors for the growth of product creation outside of the U.S. borders--including tax incentives, lower costs and the huge amounts of cash which companies have accumulated offshore.

“It isn't that we're cutting back on R&D in the U.S.,” Sankin said. “But the growth is all offshore.”

Barry Slivinsky, vice president of tax, with Adobe Systems in San Jose, agreed.

“All of the brains of Adobe personnel are not in the United States,” Slivinsky said.

As the debate over alleged tax evasion by tech-oriented multinationals has raged in the United States and elsewhere, political figures in the United States have focused on the transfer of high-value intellectual property from the United States to low-tax jurisdictions.

In several past budget proposals, President Obama has called for the expansion of Subpart F to tax so-called “excess profit” from intangibles transferred from the United States to jurisdictions with effective corporate income tax rates of less than 10 percent.

A tax reform plan from Rep. Dave Camp, (R-Mich.), the chairman of the House Ways and Means Committee, included a similar provision, “Option C,” which would use Subpart F and the possible elimination of tax credits to create effective tax rates of 15 percent for intangibles transferred out of the U.S.

A bill introduced Sept. 19 by Sen. Carl Levin (D-Mich.) seeks to combat the transfer of high-value intangibles offshore through a series of discincentives, including taxing excess income earned from transferring intellectual property and related marketing rights to a foreign affiliate, granting the IRS authority to use “common sense methods” to value transferred property, requiring country-by-country reporting by public corporations amd strengthening the Foreign Account Tax Compliance Act (FATCA).

Slivinsky blasted Camp's proposal, claiming its goal was to “vilify [intellectual property] income.”

“The tech industry is not going to like what happens next,” Slivinsky said, if IP were singled out and segregated from other kinds of income, noting that many companies that do not consider themselves tech companies nonetheless have valuable IP.

He also said it would be “incredibly hard to administer.”

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