... for the implementation of sound, long-term tax policies
that promote the global competitiveness of
the U.S. technology industry.
... for the implementation of sound, long-term tax policies that promote the global competitiveness of the U.S. high technology industry.
Tax Policy Positions
SVTDG Issue Statements
Global tax competition is real
The United States is part of a competitive global economy. Today the United States faces strong global competitors from both mature and emerging economies, where more than 95% of the world’s consumers live. At a time of heightened global competition, tax policy often serves as a deterrent in the ability of American companies to succeed in markets both at home and abroad. The taxation of foreign earnings and the complexity of U.S. international rules combine to create a high cost and complex tax environment for U.S. based companies. In a world where global tax and economic competition is real, the Silicon Valley Tax Directors Group believes our U.S. tax code needs significant reforms and technical clarifications to be competitive when it comes to creating jobs, incentivizing innovation, and attracting and retaining capital investment.
Further, the global tax environment has become more complex, and U.S. based companies must also understand and comply with individual country rules as well as the enactment of European Union (EU) Directives and Organisation for Economic Co-operation and Development (OECD) guidelines. Tax rules and legislation around the world are being enacted with increasing frequency, and the potential for double taxation of cross-border transactions is real. Ultimately, if double taxation occurs, this is detrimental for U.S. based companies’ ability to compete.
Increasing U.S. investment
U.S. multinationals make investment location decisions based on expected future after-tax returns on investment. Given enacted future tax rate increases (e.g., FDII and GILTI after 2025), the U.S. effective corporate tax rate may not provide sufficient incentive to invest in new U.S. infrastructure and research and development. To make the United States competitive with the rest of the world, the Silicon Valley Tax Directors Group believes it is important to create and maintain long-term tax policies that promote innovation, growth, and stability through:
• the continued development of a skilled global workforce,
• research and development incentives,
• changes to make it easier for U.S. companies to compete internationally, and
• encouragement of U.S. investments in capital assets and intellectual property.
Corporate tax legislation
The 2017 Tax Cuts and Jobs Act (TCJA) made significant changes to the U.S. tax landscape. It often takes years to understand the full complexity of new tax rules. The Biden Administration and Congress are currently discussing additional tax legislation. The Silicon Valley Tax Directors Group supports corporate tax reform that would encourage innovation and U.S. competitiveness. In addition, the Group would welcome much needed technical clarifications regarding the 2017 TCJA.
R&D Expenditures
The Silicon Valley Tax Directors Group believes the United States needs permanent and stable tax policies that promote investment in U.S. based R&D. The R&D tax credit and the ability to immediately deduct R&D expenses are necessary to properly reinforce the value of investments in research and innovation and encourage these types of investments for small and large businesses alike.
For years, the R&D Tax Credit (Section 41 of the Internal Revenue Code) was a temporary measure that was subject to yearly extensions. In fact, the credit was extended 15 times between 1985 and 2015 before it was finally made permanent as part of the Protecting Americans from Tax Hikes (PATH) Act. The SVTDG applauded this action as stability and certainty enables greater investment.
Another critical mechanism for helping companies compete globally is the ability to immediately deduct R&D expenses in the year in which they are incurred. Since 1954, the Internal Revenue Code has included Section 174, which has provided businesses this immediate deduction of R&D expenses. Congress substantially amended Section 174 for the first time in over six decades with passage of the TCJA. Starting in January 2022, the tax code no longer allows companies to expense all qualified Section 174 expenditures in the year incurred; instead, companies are required to amortize deductions over five years for domestic expenditures and over 15 years for expenses incurred offshore. By enacting mandatory capitalization and amortization of R&D expenditures, taxpayers bear a higher cash tax burden in the early years, and assuming flat to increased R&D expenditures over time, will result in a permanent cash tax (long term quasi loan) which decreases available cash for other purposes such as innovation or capital expenditures. This is a shift in the tax treatment of business investments in R&D that leaves the U.S. with a system unlike any other in the industrialized world and diminishes the near-term value of R&D expenditures. Removing this pro-R&D policy comes at a time when the U.S. already ranks in the bottom third of OECD member countries with respect to R&D tax incentives. The SVTDG encourages Congress to reverse this treatment to enable companies to invest in the development of new products and ideas.