The Obama administration’s 2011 budget includes many elements to disgruntle the average CFO or finance director, but few raise finance exec hackles at US multinationals as quickly as transfer pricing.

Budget proposals would require US corporations to pay tax immediately on returns of more than 30 percent traced to intangible assets owned by offshore subsidiaries in tax haven countries. The proposal sets an effective corporate tax rate threshold of 10 percent to identify tax haven jurisdictions.

One of the big issues that companies struggle with is determining and documenting fair value for intangibles. The Obama administration cites the difficulty with determining fair value as the reasoning behind the proposals, saying companies can exploit that uncertainty to move intangibles to tax haven countries.

With the 2011 budget the need for better documentation of transfer pricing policy will become a fact of life, particularly as the IRS has already set up a unit and hired a large new staff specifically to administer US corporate transfer pricing issues.

However, corporate America is lobbying hard against the proposed policy changes, citing the impact on global competitiveness and consequently on US jobs and economic growth. One of the hardest-hit areas will be the high-tech industry - and they are already battling against the proposals and any tightening of transfer tax policy.

The Business Software Alliance  – a high-tech industry advocacy group – is one such organization that is lobbying against the changes. As Robert Holleyman, President and CEO of BSA, noted in a statement: “If tax reform is on the table, it should be approached comprehensively, with a keen eye to ensuring that changes don’t hamper US competiveness in the global marketplace or the creation of US jobs.”