Alex Parker reports on a proposal from Representative Darin LaHood:
As part of the next round of pandemic relief, House Republicans are pushing new incentives for companies to bring home offshore intellectual property — something that they contend could boost job growth but that critics see as another corporate giveaway … While the 2017 Tax Cuts and Jobs Act overhauled the federal tax code and eliminated many of the incentives for offshore income-shifting, it left the structures themselves intact, and companies have been reluctant to undo them as the law remains young.
I think we admitted these 2017 tax cuts for the rich were complex so permit me to slightly disagree with Mr. Parker’s excellent reporting. If the intellectual property (IP) were left offshore, the GILTI income would face a tax rate of only 10.5% whereas onshore IP would face that FDII rate of 13.125%. Why bring the IP back home and face a higher rate? But I interrupted Mr. Parker who basically notes all these nuances:
Current law gives companies plenty of reasons to onshore the intellectual property they spent decades pushing offshore in licensing and cost-sharing agreements. Income from intangible assets held domestically may qualify for a reduced 13.125% tax rate as foreign-derived intangible income. The same income, held offshore, may fall under the global intangible low-taxed income regime, which is meant to penalize companies for holding intangibles abroad. Those carrot-and-stick provisions ultimately ensure neutrality in decisions about where to locate IP, the TCJA’s authors said when it was passed. The TCJA also included a deemed repatriation that allowed companies to bring home offshore income after it had paid a one-time transition tax. But the intangible assets that generated that income were not brought home with it, and they must be repatriated under the normal tax rules. And companies still face a potential tax charge when bringing a valuable asset home. Upon repatriation, if the property has gained value offshore, the company’s taxable income will increase based on that gain for that year, depending on how it classifies the transaction. Even though it’s a one-time payment, it could be enough to discourage the transaction.
I read this carefully, twice, but I do not understand whether the intent is to increase corporate tax payments or increase American production. I do not understand how both would be possible from this point.
Please outline the argument if possible.
“So this is both about broadening the U.S. tax base and making it easier from a tax perspective to utilize the IP domestically, which leads to more real economic activity.” They are indeed claiming both, from Parker’s article:
“‘U.S. ownership makes it easier to exploit the IP in the United States, for example by licensing it to a U.S. manufacturing affiliate,’ George Callas, a managing director at Steptoe & Johnson LLP, wrote to Law360. “So this is both about broadening the U.S. tax base and making it easier from a tax perspective to utilize the IP domestically, which leads to more real economic activity.”
Callas previously was a chief tax counsel on the Ways and Means Committee and was senior tax counsel to then-House Speaker Paul Ryan during the passage of the TCJA.
Aside from manufacturing, encouraging IP ownership in the U.S. would make it easier for companies to use that technology in research and development, according to House Republicans. In theory, that could spark the creation of new intellectual property, now held in the U.S.
The bill would allow companies to “continue to hold and use formerly foreign IP within the U.S. to support U.S. production and associated research and development,” supporting “high-paying jobs in production and applied research and, ultimately, a higher standard of living for all Americans,” according to a statement from Republicans on the Ways and Means Committee.”
It does not make sense however, from the end of Parker’s article:
“Marc Goldwein, senior vice president and policy director for the Committee for a Responsible Federal Budget, a Washington-based think tank and advocacy organization. ‘The economy isn’t suffering at the moment from an innovation shortage or a dearth in investment — it’s suffering from a pandemic.'”
IZ- They only support “high-paying jobs in production and applied research and, ultimately, a higher standard of living for all Americans,” if companies choose to use their pocketed gains in ways that consistently show they don’t as well. They think that if there was lower cost to using the IP, corporations would stop trying to play “hide the profits.” Also, less tax= better goods is a dogma they seem to follow for its simplicity not its accuracy.
Really excellent help, and I quite agree.
This Parker fellow’s reporting really is quite good, thanks for explaining the parts I didn’t get immediately.
Drugmakers Win $2.1 Billion Vaccine Deal With U.S.
Sanofi and GlaxoSmithKline are the latest to take funds from Operation Warp Speed in exchange for millions of doses of an experimental vaccine.
The deal with Sanofi and GlaxoSmithKline is the biggest so far with the U.S. government
The French drug maker Sanofi said on Friday that it had secured an agreement of up to $2.1 billion to supply the United States government with 100 million doses of its experimental coronavirus vaccine, the largest such deal announced to date.
The arrangement brings the Trump administration’s investment in coronavirus vaccine projects to more than $8 billion. This sprawling, multiagency effort, known as Operation Warp Speed, is placing bets on multiple vaccines and is paying companies to manufacture millions of doses before clinical trials have been completed.
“The global need for a vaccine to help prevent Covid-19 is massive, and no single vaccine or company will be able to meet the global demand alone,” Thomas Triomphe, executive vice president and global head of Sanofi Pasteur, the company’s vaccine division, said in a statement.
Under the deal announced, Sanofi and its partner, the British pharmaceutical company GlaxoSmithKline, will receive federal funding to pay for clinical trials as well as for manufacturing the vaccine. Sanofi said the deal also includes an option for the company to supply an additional 500 million doses. The company expects to begin clinical trials to test for safety in September, followed by late-stage efficacy trials before the end of this year. Sanofi said it could apply for regulatory approval in the first half of next year. …
Pfizer Gets $1.95 Billion to Produce Coronavirus Vaccine by Year’s End
WASHINGTON — As nations around the world race to lock up coronavirus vaccines even before they are ready, the Trump administration on Wednesday made one of the largest investments yet, announcing a nearly $2 billion contract with Pfizer and a German biotechnology company for 100 million doses by December.
The contract is part of what the White House calls the Warp Speed project, an effort to drastically shorten the time it would take to manufacture and distribute a working vaccine. So far, the United States has put money into more than a half dozen efforts, hoping to build manufacturing ability for an eventual breakthrough. …