On September 23, 2011, the Obama Administration released the draft legislative language for President Obama’s economic growth and deficit reduction plan. In addition to several domestic business tax increases, the draft legislation includes several key provisions designed to reform the U.S. international tax system. These provisions are drawn primarily from the Obama Administration’s prior budget proposals. The two tax reform items most relevant to the area of transfer pricing are (i) the proposal to tax currently the “excess returns” from transfers of intangibles, and (ii) the proposed “clarification” of the definition and valuation of intangibles.
Although each provision has been included in the Administration’s budget proposals for the last two fiscal years, the draft legislative language released on September 23, 2011, provides the first opportunity to see how the broadly worded budget proposals would be translated into specific statutory rules. The draft statutory language fleshes out details regarding the intended scope and application of the Administration’s proposals.