 William Barrett is the VP Tax at Global Foundries in Sunnyvale, CA which is the world’s first full-service semiconductor foundry with a global manufacturing footprint across Asia, Europe and the United States. Prior to Global Foundries, William Barrett was previously the VP Tax & Trade at Applied Materials in Santa Clara, CA from 1988 to 2009. Preceding that role, he was the Tax Manager of Research and Planning at Xidex Corporation in Santa Clara, CA from 1987 through 1988 and he commenced his taxcareer at Arthur Young & Company working in the San Jose, CA and Portland, Oregon offices.
William Barrett earned his BA in Business Administration/Economics from Hastings College, Hastings, Nebraska in 1977; and he earned his Masters in Professional Accounting from the University of Texas, Austin, Texas in 1979. He is also a Certified Public Accountant. William Barrett served as TEI Regional Vice President and TEI Santa Clara Regional Representative; and is a memeber of Silicon Valley Tax Directors Group, The San Jose Masters of Tax Advisory Committee, and is a member of Center for Strategic Reform. William Barrett has provided testimony relating to international taxation and tax policy reform to the U.S. House Ways & Means and Senate Finance Committee.
KJ - Bill, you have an outstanding reputation in the tax and legal community. However, I want to focus on your legislative experience in Washington because tax law changes affect everyone. How did you get started working on legislative issues that led you to speak to the United States Congress and the World Trade Organization?
WB - Becky Morgan, the highly respected CEO of a group named Joint Venture, Silicon Valley had a subcommittee I was involved in which consisted of a group of Silicon Valley company representatives who were tasked with the coming up with federal reform ideas. Our group decided to study flat tax reform ideas that were emerging as we researched a substantial amount of material on federal tax reform. I started reading some of the ideas of the tax economist Gary Clyde Hufbauer who is a well known advisor on international tax policy and trade. Tax issues would heat up when the government was discussing going after foreign sources of income because of the provision in the code that allows U.S. companies to claim excess foreign tax credits. For example, Japan had a 40% tax rate and we could use the foreign source of income rules to bring the global effective tax rate down to 35% and we would get the 5% credit in the US. For a company who is a big US manufacturer and exporter of manufactured goods, loss of the foreign source income rule could have a large negative impact to the tax rate. It was important to my company, at the time Applied Materials, and other manufacturers so my first testimony before Congress was on the topic of foreign source of income and how we could manage the effective tax rate on high earnings. When I testified for the first time in 1997/1998 in front of the Ways and Means Committee, it was really interesting because my dad was a Republican Congressman for Nebraska. I recall sitting in front of three tiers of Congressmen including the former Chairman of the House Ways and Means committee Bill Archer, the former Commissioner of the IRS Fred Goldberg, and numerous other distinguished professionals on the Ways and Means Committee.
KJ - What was the next occasion you provided testimony?
WB - The next time I testified was before Senate Finance, following the World Trade Organization (WTO) finding that the Foreign Sale Corporation and Extraterritorial Income Exclusion (FSC/ETI) export credit were unfair export subsidies under WTO rules. For large U.S. exporters like Applied Materials, FSC/ETI produced up to a 5 1/4 percentage point tax rate reduction on export profits. My views before Senate Finance were intended to express the importance of providing tax rate reduction for U.S. manufacturers to maintain some semblance of competitiveness with multinationals manufacturing in low tax jurisdictions outside the United States. I learned a great deal about how politics worked in Washington, D.C. leading up to this testimony in discussions I had with congressional staffers. Half of tax legislation is about doing the right policy; the other half is all about how to outmaneuver other congressman on the opposite side of the political aisle.
KJ – How would you advise a tax professional going to Washington for the very first time?
WB - Prior to my WTO testimony, we went on a road trip sponsored by the National Foreign Trade Council where we were invited to foreign government offices and where I joined the group in London. Our group actually had the opportunity to have a meeting on 10 Downing Street (location of the UK Prime Ministers Office) where we met with a Senior Treasury person from the UK. On this particular occasion, one of the members in our group was an older style lobbyist who had a tendency to fist pound and attempt to intimidate. However, our teams’ goal was to educate people on the technical reasons why the U.K. should support the U.S. in the WTO case against the U.S. I believe this is a much more effective way of presenting your argument when trying to educate and influence government officials.
I truly believe that the best way to deal with the politicians in government is to come up with an intellectually sound argument; and this is where it takes some work on the tax directors part to put a great deal of effort into studying the issue. My advice is to come up with an intellectually sound argument that is good not only for the companies but for the broader U.S. economy. This is more likely to make Congress take a look at the issue. They particularly like it when you come up with an argument that they can use for re- election. When you can put all of the pieces of the argument together and it is intellectually sound, I believe this is the best way to approach the issue. You gain more credibility from the people in Washington when you are known for presenting intellectually sound arguments. Good reputations for intellectually sound arguments will open doors for you when presenting issues to others. The best advice that I have for anyone is to do your homework, come up with intellectually sound arguments that are good for the company and your country and the Congressman you are presenting it to.
KJ - What issues do we need be aware of in Washington, D.C. right now?
WB - We all saw the danger on the horizon in the President’s budget proposal last year. The key international areas that the Obama Administration attacked in last years budget were: Repeal of the check the box election which currently allows companies to elect pass through/non corporate status for subsidiaries; Disallow U.S. expenses related to foreign activities; Compute U.S. foreign tax credit on one single global pool; and Expand the definition of intangibles when setting up foreign operations which would result in an increase in U.S. taxes when expanding offshore. It is very clear that their intent in the international area is to go after foreign earnings. It is also very clear that they want to shut down some of the tax planning techniques and deny or defer deductions related to foreign activity.
The logical and intellectual consequences of these proposals are that the cost of doing business outside of the U.S. increases. My view is no different than a wage cost, corporate tax is a big number but fundamentally it is no different than paying someone a wage, it is an expense. Therefore, if you can reduce that expense you will want to work at reducing it and this is why companies go offshore because the tax rate is too high.
KJ - Can you explain deferred deductions related to foreign activity?
WB - For example, if a U.S. company has a subsidiary in Germany, the proposal would defer the deduction for expenses on the U.S. books that are considered related to the German income. In other words, if you do not get a deduction for the expenses related to the subsidiary then your effective tax rate goes up.
KJ – How would you advise a multinational organization given your corporate and legislative experience?
WB - If the company is a more mature company, they should look at foreign locations that are close to the organization’s customers, they should consider only countries with good logistics, they should consider the countries regulatory and banking environment, and then they should consider the tax rate! I think if you go into a country with a low tax rate it is very important to look at all of the other factors first! These other considerations are equally as important as the low tax rate the country offers. Countries that are good in these respects are Singapore and Ireland to name a couple.
KJ - What are the consequences of higher tax rates in the market?
WB - The logical intellectual conclusion is if the tax rate goes up in the U.S., because the tax rate is higher on foreign income, is that companies may not be able to compete with foreign competitors. Logically, the first consequence is that they may end up selling their foreign assets. The second logical consequence is that more companies go offshore with their business, and the U.S. loses even more jobs over time. We need to have manufacturing stay in the U.S. if we are to have more employment in the U.S.!
If Congress continues its present course, you will see more companies exiting the U.S. through acquisitions or movement of a manufacturing plant and intellectual property outside of the U.S. As a result, over time we will see more and more foreign ownership of manufacturing and intellectual property. The logical consequence of these policies are that companies will have an easier time keeping the tax rates lower by taking manufacturing and intellectual property out of the U.S.
KJ - What changes would you propose to this administration?
WB - The single most important advice from my perspective is to not tax income that is earned in the U.S. when you export products! The reason I say this, is that U.S. companies will continue to move offshore to manufacture products at a much lower tax rate. If a U.S. company can decrease their tax rates by manufacturing offshore. then they are going to go in that direction. These tax problems can be solved, but if you want to go to Washington, D.C. to help solve them then you must get out of your comfort zone. You also need to do other things like read the WTO cases and understand trade and the impact of trade. You need to get out of the tax silo; I believe the most capable and educated people to do this are tax professionals. Tax professionals know how to read the code and the regulations whether in tax and in trade. This knowledge will allow tax professionals to have a broader and more holistic conversation with the people in Washington, D.C.
William, thank you for taking the time to answer our questions. Your perspective is valuable to the Tax Intelligence Report readers around the world and we genuinely appreciate the time you gave to share your experience.
Kathleen Jennings (KJ)
Editor, The Tax Intelligence Report
Kathleen@etsearch.com
William Barrett (WB)
Vice President of Tax
Global Foundries
Sunnyvale, CA
wcbarrett@gmail.com
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INTERNATIONAL
TRANSFER PRICING
SUMMIT 2010
I’m delighted to bring you news of the largest global transfer pricing event to take place in 2010 – IBC’s International Transfer Pricing Summit. Featuring a number of industry expert presentations, interactive panel sessions, associated workshops and a networking drinks reception, this event is fast becoming a perennial must for all in- house heads of transfer pricing and their advisors.
30+ WORLD CLASS SPEAKERS AND THOUGHT LEADERS INCLUDING:
OECD ● IRS ● HMRC ● ASTRAZENECA ● PROCTER & GAMBLE (US) ● ROLLS-ROYCE ● GENERAL ELECTRIC (US) ● SIEMENS AG ● PEPSICO, INC (US) ● HSBC ● CADBURY ● VODAFONE ● SHELL INTERNATIONAL B.V. ● NIKE ●; JAPAN TOBACCO ● TNT CATERPILLAR ● ERICSSON ● BILFINGER BERGER ● REED ELSEVIER ● STANDARD BANK ● BOREALIS AG ● THE WALT DISNEY COMPANY ● A. P. MOLLER- MAERSK ● ALCOA ● and many other TP leaders!
Please find the full programme enclosed in PDF format. This can also be downloaded from event’s website: http://www.iir-events.com/IIR- Conf/page.aspx?id=24635
The summit is taking place on 9th & 10th March 2010 at the Hilton London Paddington, UK.
We would like to take this opportunity to offer you and your colleagues a 10% discount, which we have negotiated as part of our media partnership agreement. Also, if you register by 12th February you can claim additional early bird discounts.
Please quote the VIP Code: KW5100ITREM to get your double-discount.
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Tel + 44 (0) 20 7017 7790
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