Ataxingmatter will be 'off the air' until Monday, July 30, as I travel to Berlin for the annual Law and Society meeting where I'll be talking about the potential implications of tax strategy patents in a globalized economy. Today, Europe and Japan, among others, are resisting the idea of providing patents to nonindustrial applications. But the U.S. Patent and Trademark Office has begun issuing business method and tax process patents. Will the rest of the world follow the USPTO's lead?
As readers of this blog well know, I am not supportive of tax strategy patents, for various reasons. I suspect that they will worsen compliance and contribute to the view that the tax laws are merely a system to be gamed. And like Bernard Wolfman (see his letter in Tax Notes), I don't think the government has any business granting a monopoly on an interpretation of the law.
The following is the abstract of my presentation.
The U.S. tax administration began a new era of enforcement by focusing on "cloned" tax shelters that were marekted by ambitious accounting and tax firms to small groups of customers. That focus led to heightened transparency requirements--new disclosure rules, higher standards for tax reporting, and stiffer penalties. Even the courts, which had seemed reluctant to apply judicial doctrines to stop aggressive tax structuring, have appeared to gain new backbone in this age of stiffer enforcement expectations. Just at the time when it appears that the attention to tax shelter activity may reduce the amount of aggressive tax planning, the U.S. Patent and Trademark Office has thrown a wrench into the machinery by issuing a series of patents on tax planning strategies, after the State Stree Bank decision opened the way for business method patents generally.
The patenting of tax strategies may have significant effects well beyond the questions of royalties, liabilities for infringement, or difficulties of litigating against validity of a tax patent that are already the subject of discussion among tax practitioners and academics. There are concerns, in particular, that the ability to patent legal processes relating to tax liabilities may make it more difficult for taxpayers to comply with the law. This essay will briefly review the concerns raised by tax strategy patents, including ethical questions confronting practitioners who hold a tax strategy patent, the potential impact of tax patents on the development of the underlying "tax minimization norm" that this author has noted in earlier papers as a significant factor in tax shelter activity, and the anti-competitive effects of multijurisdictional tax strategy patents.
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