Microsoft Joins Merck in Pitch for Tech-Friendly Tax Code

Microsoft Corp. (MSFT), Merck & Co. (MRK) Inc., Amgen Inc. and other technology-focused companies are joining forces to seek U.S. tax code changes that wouldn’t put at a disadvantage income earned from patents and intangible assets.

The companies are part of the newly formed Tax Innovation Equality Coalition, whose other members include Xilinx Inc. (XLNX), Adobe Systems Inc. (ADBE) and Netflix Inc. (NFLX)

The Washington-based group, which announced its formation today, is responding to proposals -- including one from House Ways and Means Chairman Dave Camp -- that would apply different tax rules to income earned from intangible assets. Changes to those laws could raise these companies’ taxes to pay for lighter burdens on the foreign income of all U.S.-based multinational corporations.

“It only makes sense that any tax reform proposal would try to cut the benefits of the members of this coalition, because they have the lowest effective tax rates,” said Martin Sullivan, chief economist at Tax Analysts in Falls Church, Virginia. “This coalition is playing defense.”

Camp, a Michigan Republican, this month endorsed a carrot-and-stick approach that would apply a 15 percent immediate tax to such income regardless of where it’s earned. That would give the companies a tax increase abroad and a tax cut at home.

25% Rate

Other corporate income would be subject to a 25 percent rate on domestic profits and almost no U.S. tax on foreign income.

“Companies would feel less pressure to shift income to low-tax jurisdictions because that income would be taxed at the same rate -- whether it is earned in the United States or Bermuda,” Camp said at a June 13 hearing.

Under the current U.S. tax system, companies can move intangible assets derived from intellectual property across borders and can structure their businesses in ways that minimize foreign taxes. They can then avoid U.S. taxes by keeping the money overseas.

The TIE Coalition is the latest in a series of groups that have formed as Congress considers a rewrite of the U.S. tax code. Other groups are focusing on the corporate tax rate and changing international tax rules.

The coalition isn’t advocating or opposing a particular plan, said Mark Nebergall, president of the Washington-based Software Finance & Tax Executives Council.

“All these proposals, with a few exceptions, seem to pick on intangible property,” he said. “Proposals that do not discriminate against intangibles are the ones that deserve the most scrutiny.”

Tax Credits

Congress should be careful not to impose tax changes that could cost jobs in industries reliant on intellectual property, said Matthew Slaughter, a Dartmouth College professor who conducted a study for the coalition.

“In many ways, tax policy being one, there are literally dozens of other countries in the world that are moving aggressively to try to build their capacity” in these industries, he said in a phone interview today.

The current U.S. system already gives these companies breaks, Sullivan said. They are eligible for the research tax credit and can take advantage of the mobility of intangible assets, which can be transferred more easily than factories.

“It’s hard to value and it’s hard to locate,” Sullivan said, “and so that makes it easy to put a lot of profit into a tax haven.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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