Tuesday, July 5, 2016
Linda M. Beale (Wayne State), #Wow: Reforming Intellectual Property Taxation (or Maybe IP Law), 151 Tax Notes 1249 (May 30, 2016):
Intellectual property (IP) is often used narrowly to refer to areas of the law that provide generally settled legal protections for expressive works and inventions. However, the classic concepts of IP law – e.g., patent, design, copyright, trademark and trade secret — no longer afford easy categorization for taxation purposes. As the “knowledge economy” has expanded, so too have the types of value-producing intangible assets that are often technological and critical to describing business values. Of perhaps the greatest consequence is the shrinking ability of sovereign governments to capture a fair share of tax from quasi-sovereign multinationals that set their own tax liabilities, in part because of the difficulty of determining which country should tax the income attributable to the IP assets. The purview of IP — or at least the scope of what we need to consider in a digitalized, globalized, and deeply commercialized world to establish appropriate IP tax provisions — has become much broader, and characterization has become more difficult.
This article explores underlying themes in ten recent articles on IP taxation. Particular attention is given to the ease with which intangible IP assets can be transferred among affiliates and the resulting tax avoidance and base erosion possible for IP-intensive industries when old rules are applied. On the supportive side of the flexibility that movement of intangible assets provides are supportive arguments for IP-intensive profit shifting and development of patent or even broader “innovation” boxes providing extremely low corporate tax rates for IP-intensive industries, but on the other side are innovative approaches to transfer pricing and profit splitting that see base erosion and profit shifting as a global problem. One author suggests that tried and true IP litigation strategies may be effective in preventing the worst of the IP-intensive multinationals’ tax avoidance, using their own claims of artificially low IP valuations against them. Also examined is the treatment of the creative arts, both domestically and internationally. One author methodically considers domestic IP protection for creative artists to conclude that the special breaks for songwriters, and the various bills for Artist-Museum Partnerships make no sense. Others look at the problems with international (and domestic) film production credits or in distinguishing royalty from service income for athletes travelling to different jurisdictions and facing different tax rules. Finally, an assessment of the ways states address the taxation of cloud computing demonstrates the need to develop tax policy that moves beyond the traditional tax category cubbyholes.