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.