Intellectual Property Law Solutions to Tax Avoidance
72 Pages Posted: 6 Jun 2014 Last revised: 13 Jan 2015
Date Written: June 4, 2014
Multinational corporations use intellectual property (IP) to avoid taxes on a massive scale, by transferring their IP to tax havens for artificially low prices. Economists estimate that this abuse costs the U.S. Treasury as much as $90 billion each year. Yet tax policymakers and scholars have been unable to devise feasible tax-law solutions to this problem.
This Article introduces an entirely new solution: change IP law rather than tax law. Multinationals’ tax-avoidance strategies rely on undervaluing their IP. This Article proposes extending existing IP law so that these low valuations make it harder for multinationals to subsequently litigate or to license their IP. For example, transferring a patent for a low price to a tax-haven subsidiary should make it harder for the multinational to demonstrate the patent’s validity, a competitor’s infringement, or entitlement to any injunctions. The low transfer price should also weigh toward lower patent damages and potentially even a finding of patent misuse. Extending IP law in such ways would thus deter multinationals from using IP to avoid taxes. Both case law and IP’s policy justifications support this approach.
Keywords: tax, transfer pricing, transfer-pricing, intellectual property, IP, patent, copyright, trademark, section 482
JEL Classification: K34
Suggested Citation: Suggested Citation