NEW YORK: Please use the sharing tools found via the email icon at the top of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email [email protected] to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. Multinational companies that generate significant non-US profits from intellectual property would be hit by a new US tax regime under a plan from Senate Republicans that has created fresh uncertainty over international tax.
On a tumultuous day when Senate Republicans revealed one tax plan just as House Republicans approved another at committee level, companies that rely on intellectual property — notably in the tech and pharmaceutical sectors — were in the line of fire.
A person familiar with the Senate plan said it would impose a tax of at least 10 per cent on income from intangible assets such as intellectual property, though it would be levied differently on US companies and the American subsidiaries of foreign companies.
For US corporations, a Republican aide said the goal was to introduce a system of “carrots and sticks” to stop companies from moving profits out of the US by shifting patents, copyright and other IP to low-tax countries.
The “stick” is to tax income from intangible assets earned by foreign affiliates at 10 or 12.5 per cent, said two aides. At present US companies pay no US tax on such income unless it is repatriated to America.
The “carrot” is to subject income from US-based intangibles to a tax of only 10 per cent — less than the proposed new corporate tax rate of 20 per cent — to encourage American companies to move intellectual property back to the US.
Multinationals’ tax avoidance strategies have emerged as one of the biggest targets for lawmakers seeking to raise money to pay for lower corporate rates overall. A House bill last week proposed the introduction of an “excise tax” on cross-border payments between affiliates of the same company, sparking a ferocious lobbying backlash.
Apple has brought attention to US companies that use payments between affiliates — known as related-party transactions — to move profits out of the US, as the European Commission demands that it reimburse Ireland for €13bn in underpaid taxes.
