contributed articles
Doi: 10.1145/1866739.1866756
How companies pay programmers
when they move the related IP rights
to offshore taxhavens.
BY Gio WieDeRhoLD
follow the
intellectual
Property
IN the oNGoING discussion about offshoring in the
computer and data-processing industries, the 2006
ACM report Globalization and Offshoring of Software
addressed job shifts due to globalization in the
software industry. 1 But jobs represent only half
of the labor and capital equation in business. In
today’s high-tech industries, intellectual property
(IP) supplies the other half, the capital complement.
offshoring IP always accompanies offshoring jobs
and, while less visible, may be a major driver of job
transfer. The underlying economic model—involving
ownership of profits, taxation, and compensation
of workers from the revenue their products generate—
has not been explicated and is largely unknown in
the computer science community. This article
presents the issue of software income allocation
and the role IP plays in offshoring. It also tries to
explain why computer experts’ lack of insight into
the economics of software, from investments
made, to profits accumulated, to capital becoming
available for investment in new projects and jobs.
My intent is to help make computer
scientists aware of the relationship of
the flow of jobs in computing and the
flow of preexisting IP. The ability to create valuable software greatly depends
on prior technological prowess. The
processes allowing IP to be moved offshore, beyond where the software was
created, are formally legal. The resulting accumulation of massive capital in
taxhavensa has drawn governmental
attention and put pressure officials
to change tax regulations. 1 However,
the changes proposed in these discussions ignore IP’s crucial role in generating such capital and, even if enacted,
would be ineffective. Transparency is
needed to gain public support for any
effective change. In addition to advocating transparency about IP transfer, I also offer a radical suggestion—
eliminate corporate taxation as a way
to avoid the distortion now driving the
outflow of IP and providing much of
the motivation for keeping capital and
IP offshore.
I do not address the risk of misappropriation of IP when offshoring, a
related but orthogonal issue, covering instead only the processes that are
legal. The risk of loss was addressed
throughout the 2006 ACM report, 1
which also cited tax incentives, a much
larger economic factor for businesses
than misappropriation of IP. The role
a The notion of a taxhaven is a concept in ordinary discourse and a crucial aspect of this article. Moreover, using a one-word term simplifies the specification and parsing of subsets, as
in “primary taxhavens” and “semi-taxhavens.”
key;insights
Profits from the work of software
creators and programmers are based
on iP being moved offshore.
Locating iP in primary taxhavens
damages both developed and emerging
economies and disadvantages small
businesses.
the capabilities of multinational
corporations exceed the capabilities
of governments.