IT Industry Joins Coalition Opposing Obama's International Tax Reforms

by MIke Godfrey, Tax-News.com, Washington

28 July 2009

Prominent names from the IT industry have thrown their weight behind a coalition of businesses which is attempting to persuade the Obama administration to drop aspects of its international tax proposals, warning that they will harm US competitiveness.

In a letter sent to key members of Congress on July 23, almost 300 companies and industry associations belonging to the Promote America’s Competitive Edge (PACE) Coalition state their strong opposition to proposals to end ‘deferral’ and other tax law provisions that they argue are helping American companies compete on a level playing field both domestically and internationally.

Among the signatories are the Business Software Alliance (BSA) - which includes companies such as Adobe, Apple, CA, Cadence, Cisco, Dell, Hewlett-Packard, IBM, Intel, McAfee, Microsoft, Sybase, Symantec and Synopsys - and many other high-tech companies and groups.

“The computer software and hardware industries are some of America’s leading champions in global markets,” says Robert Holleyman, President and CEO of BSA. “Consider that overseas sales account for more than 50% of revenues for most of BSA’s publicly traded member companies, and about 60% of global spending on PC software is paid to US-based software companies. Software also is one of the few American industries that runs a trade surplus – an estimated USD36bn in 2008.

A central plank of Obama’s international tax proposals, intended to prevent firms from “shipping jobs overseas,” is reform of the ‘deferral’ rules so that businesses cannot take immediate deductions on foreign investment expenses while deferring the payment of income tax on profits made from those investments until they are repatriated to the United States. Under the plans, the rules surrounding ‘deferral’ would change so that – with the exception of research and experimentation expenses – companies cannot receive deductions on their US tax returns supporting their offshore investments until they pay taxes on their offshore profits.

According to the PACE coalition, these proposals would force American companies to lose deductions for costs of doing business in the US, risk double taxation of dividends from worldwide business operations, and limit their ability to choose the entity or form in which they do business. “Together, these proposals are in broad measure equivalent to repealing deferral,” the group wrote.

“Clearly, any tax proposal that would affect the software industry’s ability to compete in overseas markets would have a serious impact on our ability to create jobs and solutions to America’s challenges,” Holleyman added. “In fact, it would create an incentive to move operations out of the United States or to withdraw from foreign markets. Either way, it’s a lose-lose situation for American workers and taxpayers.”

The letter says American industry supports closing tax loopholes and prosecuting those who cheat on their taxes but it is “inaccurate and misleading” to depict the international tax provisions as tax loopholes.

“The current US international tax system has evolved over decades in a manner that attempts to keep worldwide American companies on a nearly level playing field with competitors in other nations,” the coalition writes, going on to warn that: “Meanwhile, other leading economies are moving to make their corporate tax systems more competitive. As a result, the United States lags behind and is increasingly isolated from the rest of the world.”

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