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OCR Page 1 of 13Houng, Ton
Form sales Ceparated
THE WHITE HOUSE
- aread
WASHINGTON
10 April 1995
Rdo
MEMORANDUM TO THE PRESIDENT
CC:
LEON PANETTA
FROM:
Harold Ickes
SUBJECT:
Extending the export tax benefit under the Foreign
Sales Corporation Rule to computer software
licensed abroad with a right of reproduction.
Attached, as you requested, is a 4 January 1995 confidential
memorandum to me from Norm Richter, then of the Treasury Office
of Tax Policy, regarding software industry's request to extend
export tax benefits under Foreign Sales Corporation ("FSC") rules
to computer software.
Also attached is a 13 September 1994 memorandum from Tom Kalil,
of the National Economic Council, to Bob Rubin, et al., regarding
application of FSC rules to computer software.
As explained to me, under the current Treasury Department's
regulations, the tax benefit of the FSC rule apply only to
shrink-wrapped software sold to a foreign buyer without a right
of reproduction. The tax break for such exports effectively
allows up to a five percent point reduction in the tax rate on
profits from U. S. exports. This FSC tax benefit does not apply
to software licensed abroad with a right of reproduction.
Those in the software industry who sell or license software
abroad with a right of reproduction are pressing very hard to
have the Treasury Department revise its regulations so as to
permit this five percent FSC tax benefit apply to software
licensed abroad with a right of reproduction. Among others,
Larry Ellison, the President of Oracle, James A. Abrahmson, COB
of Oracle and Richard Warren Brown of Microsoft, have pressed
this case. Based on my conversations with Treasury, it is
Treasury's view that the FSC statute does not permit Treasury to
issue regulations extending the FSC tax benefit to software
licensed abroad with a right of reproduction. It is Treasury
position that while they could issue such regulations, they would
probably be subject to challenge, and, therefore, Treasury very
much prefers Congress to take action in this regard. Treasury's