Tax Strategy Patents – a Tax Lawyer's View

Abstract

Strategic tax planning in the U. S. is currently under attack not only from tax law and tax authorities, but also from the sphere of patent law. As a consequence of the State Street decision by the Court of the Federal Circuit which upheld the patentability of business methods, also tax advisors who have invested human capital in the design of a tax strategy have successfully begun to seek protection under the U. S. patent system, which in turn has led to sharp criticism from tax experts and lobby groups. This article approaches the debate from the viewpoint of tax law and attempts to solve the conflict by distinguishing between two different kinds of scenarios, which demand different treatment under fiscal law. On the one hand, taxpayers simply want to arrange their business activity in a tax-efficient manner by adopting “legitimate tax planning”. Starting from the fact that such arrangements constitute a fundamental right of every taxpayer, the article outlines that any monopolisation or privatisation of legitimate tax strategies in the hands of specific tax advisors and their clients runs foul of the very basic assumptions of generally recognized tax policies. On the other hand, there are so called “tax shelters” which have no real connection to the business activity of a taxpayer, but are meant to minimize the tax burden by creating artificial constructions which would not have been established but for tax reasons. In this regard, the article elaborates that the formal recognition of tax shelters under patent law entails the danger of producing the misperception among the general public that the patented tax shelter is also valid under tax law and thus leads to a subjective legitimisation of potentially illegitimate behaviour.