Thoughts on recent FT blog post on TCJA treatment of intangible assets?

[martinholmer]

@codykallen, The first paragraph of the blog post says:

it certainly would be helpful to get software firms to clarify the exact effect the Senate’s new [TCJA] rules for intangible assets will have on their tax bill

The blog post presents some formulas and poses this question:

Is there a chance the tax bill isn’t great for multinational companies?

Is this a reasonable analysis of the Senate bill?

[codykallen]

@martinholmer, unfortunately, I don't have a FT subscription. Could you clarify the context of your quotes?

[martinholmer]

@codykallen said:

I don't have a FT subscription.

The article appeared in the FT Alphaville blog, which is free (although you might have to register).

[codykallen]

I don't have much expertise with international taxation, which is part of why I have delayed building a profit-shifting business response.

That being said, this provision is targeted at companies like Apple and Google, which receive supernormal returns from intangible assets, which can be (fairly easily) reclassified as income earned in a foreign jurisdiction.

The bill's use of a ten percent "normal" return is actually greater than the "normal" return by almost any other standard. For most multinational firms, the 10 percent standard is significantly higher than the normal return to capital, so this provision is relatively unimportant for them. However, large multinational firms with supernormal returns accruing from intangible assets are currently able to classify that income as foreign earned income and avoid repatriating it. The TCJA's rules would subject some of that income to taxation regardless of whether they repatriate it, reducing the disincentive to shift income abroad.

Is there a chance the tax bill isn’t great for multinational companies?

Yes. Given that multinational companies with supernormal returns from intangibles (exemplified by the large tech and software companies) pay very little tax in the U.S. on that income, any tax bill that subjects their foreign-classified income to tax could make those firms worse off.

[martinholmer]

@codykallen said in response to the question posed by the FT blog post:

Is there a chance the tax bill isn’t great for multinational companies?

Yes. Given that multinational companies with supernormal returns from intangibles (exemplified by the large tech and software companies) pay very little tax in the U.S. on that income, any tax bill that subjects their foreign-classified income to tax could make those firms worse off.

OK. Thanks for the helpful explanation.

[codykallen]

@martinholmer, do you have any further questions on this issue?

[martinholmer]

No more questions