Posted: Oct 21, 2014 12:00am ET
Today, ANA sent a letter to Thomas Schneider, the ICANN Governmental Advisory Committee (GAC) Chair, and Peter Nettlefold, ICANN CCWG on Country and Territory Names, asking them to extend the deadline for comments regarding a proposal to expand the GAC’s ability to veto geographically related domain names. In our letter, we requested that the deadline for responding to the proposal be extended for all interested parties from October 31, 2014 to December 31, 2014. This proposal raises significant issues not only for ANA members, but also for the Internet community at large because it would potentially prevent brands with trademarked names associated with geographic locations to successfully apply for their own top level domain name (TLD). This proposal, which was put forth by GAC Vice Chair Olga Cavalli from Argentina, can be viewed here.
gTLD Update: Auctions for the New gTLDs; Whether to Trust Industry, Profession, and Geographic gTLDs
Posted: Sep 30, 2014 12:00am ET
By Brad R. Newberg, Reed Smith LLP
While many, myself included, have discussed the uninspiring registration numbers for most of the new gTLDs, there are certain numbers that have been eye-popping: the amounts that are being paid for many of the gTLDs in auction. When two or more applicants are both deemed eligible for the same new gTLD string, the impasse is resolved in one of two ways. Either the companies agree among themselves which one should get it—almost always involving one company paying off the other(s)—or, the companies enter into an auction. These auctions can be run through ICANN, which was certainly counting on auctions as a major windfall well beyond the millions it received in gTLD application fees. They can also be run privately through various companies, some of which have been started recently for this very purpose.
While many of the winning bids have been kept confidential (as have most of the payouts from one company to others to avoid auction), the ones that have been released have been astonishing. For example (all numbers according to published reports or releases from companies), the winning bid for .TECH was $6.76 million by Dot Tech LLC; Amazon got .BUY for $4,588,888; Minds + Machines bought .VIP for just over $3 million; and, so on. In sum, all estimates I have seen surmise that the average purchase price for the gTLDs to go to auction was at least $1.3 million, and probably more. Of course, for the companies involved in multiple private auctions, some of this is pushing money back and forth between the same companies as the agreement in these private auctions is typically that the losers of the auctions get paid the lion’s share of the winning bid.
On the flip side of things, Domain Incite, an online news organization dedicated to reporting on domain name issues, has released a story that some number of the already launched or about to be launched gTLDs will be auctioned off in October.
Some of the new gTLDs have not been doing well at all, with average registrations totaling just a few thousand among all of the gTLDs, and many well below that. In a previous post, I surmised that many of these gTLDs would have little choice but to go out of business if they could not increase registrations or if their existing registrations went away come renewal time. It is possible that some of these struggling gTLDs will, instead, be bought by investors who think they can do a better job with the gTLD, or who believe that a particular string will be a valuable asset. As stated by Domain Incite, it “could be the first example of ‘domaining’ with TLDs.”
We do not know yet which gTLDs are being auctioned off, so it is also possible that these are gTLDs that have not launched yet or that belong to companies that always planned on selling. If not, however, the eventual reveal could give us a good indication regarding the health of the gTLD program. Furthermore, if the gTLDs up for sale really are struggling top-level domains, which have not even been active for a year, ICANN might want to think hard before starting a second round of applications too early.
As a final note on such sales, it certainly is strange that ICANN would make gTLD applicants go through an incredibly rigorous application process with dozens of questions geared toward the security of the Internet and the applicant’s financial commitment to the gTLD, only to allow the gTLD—once granted—to be sold off to a third-party. One would hope that ICANN thoroughly vets any new owner of these recently approved strings.
Another issue of which brands should be aware concerns gTLDs associated with industries of heightened concern or a geographic region. For example, on the industry and professional side, some of the new gTLDs include .DOCTOR, .HEALTH, .ATTORNEY, .LAWYER, .ACCOUNTANT(s) and various ones related to real estate and finance/banking. Geographic gTLDs stretch from .NYC to .BERLIN to .TOKYO and so on.
As marketing for the new gTLDs has been minimal, no one knows for sure what the public will assume of these gTLDs. Given the specificity of these gTLDs and the fact that there actually are some gTLDs (“community” and otherwise) with wide-ranging requirements, will they incorrectly assume that the registrant of a second-level domain name in one of these occupation-specific gTLDs must have shown that she holds the proper licenses and is free of any serious violations? .NYC has certain requirements for its registrants, while many other city-based gTLDs do not. Will the public, knowing of the .NYC requirements (which might or might not be easy to circumvent anyway), assume that any business with a .LONDON second-level domain name must actually have shown that it is located in London?
Certainly, some brands will want to participate by registering second-level domain names in these industry-/professional- or geographic-specific gTLDs, especially where their company is closely aligned with that industry or profession, or has operations in that city. The concern, however, is whether there will be any backlash to all domain names within a gTLD when a consumer gets scammed by someone she assumed had a professional license he did not, or when a consumer believes he is getting an authentic piece of merchandise from a Tokyo business when the actual manufacturer or retailer is somewhere else. Such fears might be overblown, but they are worth considering. As always, brands should consult their internal marketing and legal teams or outside counsel, if necessary, to weigh risks and rewards.
ANA Calls on New York Delegation to Oppose Ad Tax Proposal that could Significantly Impact the State’s Economy
Posted: Sep 29, 2014 12:00am ET
In case you missed it, today Politico Morning Tax and New York Capital Playbook included the letter that ANA sent to all members of the New York Delegation marking the start of Advertising Week in New York. The letter urges opposition to draft tax reform proposals in Congress that would drastically cut the advertising deduction.
As thousands of marketing and communications professionals come together for Advertising Week to discuss best practices and the future of advertising, it is also a perfect time to recognize the important role that advertising plays in the state and city of New York. It is fitting that Advertising Week is held in New York as the city is the center of the advertising industry we know today. From the start of the industry until the present day, advertising continues to be one of the major driving forces in the New York economy, as it creates new jobs and generates sales.
According to a recent study commissioned by The Advertising Coalition and the ANA and conducted by IHS Global Insight, advertising accounts for $510.9 billion of economic output in New York – that is 19.7 percent of the $2.5 trillion total economic output in the state. These impressive figures unfortunately could be in serious jeopardy because of a proposed major change to the U.S. Tax Code that would severely impact the bottom lines of New York companies and place New York jobs and sales at risk.
New York businesses will face a significant financial burden as a result of the proposals in Congress. Companies that spend $1 million or more on advertising in a year would be allowed to deduct only 50% of their advertising costs. The remaining 50% would have to be amortized over ten years in the House draft and five years in the Senate draft.
Since 1913, when the federal income tax was first enacted, 100 percent of advertising expenditures have been deductible in the year in which they are expended—treated no differently than any other ordinary and necessary business expense, like salaries, rent, utilities and office supplies. A study by Nobel Laureates in Economics, George Stigler and Kenneth Arrow, found that there was no economic or tax basis for amortizing advertising.
True tax reform in this country should not focus on penalizing companies that advertise; rather, tax reform should focus on closing loopholes and special interest write-offs that limit the competitiveness of all businesses, whether in New York or nationwide.
ANA called on members of the New York Delegation to actively oppose any tax on advertising whether through a delayed deduction of these costs or other means because of its potential to seriously impact New York’s businesses’ bottom lines and jeopardize the state’s economy, jobs and sales. While New York clearly is one of the largest centers of advertising in this country, our economic analysis has demonstrated that every congressional district and state in the U.S. is profoundly positively impacted by advertising. IHS Global Insight’s research demonstrates that for the U.S. as a whole, advertising generated $5.8 trillion in economic activity and 21.7 million jobs in 2012.
Posted: Sep 12, 2014 12:00am ET
In response to a new and worrisome proposal put forth by the Board of the Internet Corporation for Assigned Names and Numbers (ICANN), ANA today filed comments in opposition to this overbroad step by the Board. The proposal plans to dramatically increase the influence of the Government Advisory Committee (GAC) within ICANN. As it stands today, GAC is a very powerful committee made up of national governments and, usually as observers, UN agencies and other multi-national organizations. There are currently 137 GAC members and 30 observers.
However, the troubling issue with the proposal is that it would amend the bylaws so that ICANN’s Board would be forced to adopt all GAC advice unless two-thirds of the non-conflicted board members vote to oppose the advice. This overbroad step would give GAC even more influence than it already has, and would significantly impact the multistakeholder model ICANN claims to be using. In our comments, we point out that ICANN is too frequently influenced by discrete internal constituencies that attempt to advance their own interests and do not always represent the views and concerns of the majority of Internet users. This problem would only be substantially increased by giving GAC more control than it has now.
Our letter also acknowledges the fact that governments may at times, especially in the security area, have expertise that is especially useful and should be taken into special consideration. However, this proposal goes too far in giving GAC an across-the-board preference. The unintended consequences of this action could be very far-reaching and could adversely impact the future of ICANN.
We strongly urge all advertisers to consider filing comments in opposition to this proposal. The challenges this change could pose to brands are severe and need to be protected against. Ensuring that ICANN’s Board knows the impact their proposal would have on advertisers is the only way our interests can be adequately represented in this process. ICANN is accepting the first round of public comments on this proposed change until September 14, 2014, and reply comments until October 6. Comments can be sent to firstname.lastname@example.org. Similar to previous proposals from ICANN, it is again vitally important that the advertising industry band together to stop the Internet from becoming a hostile place to advertise and do business.
Posted: Sep 10, 2014 12:00am ET
A recent proposal that would require an a la cart approach to broadcasting and that would have adversely impacted advertisers was successfully combatted this week. On September 8th, ANA joined with the 4A’s and AAF to send a letter to Sen. Jay Rockefeller (D-WV), the Chairman of the Senate Commerce Committee, and the Ranking Minority Member of the committee, Sen. John Thune (R-SD). The letter questioned their “Local Choice” proposal as part of the Satellite Television Access and Viewer Rights Act (STAVRA). Local Choice is the popular name for the effort that would allow individuals to opt-out of paying for TV station signals, in effect creating an a la carte regime for broadcasting, but not for cable channels.
In our letter, we raised many concerns about the impact of this proposal on the longstanding local broadcast model, which ensures free over-the-air broadcast television for all Americans.
Through the Communications Act of 1934, individuals receive free local news, weather, sports, and entertainment which are paid for by advertising revenues. Getting rid of a universally free broadcast system would greatly threaten advertisers who participate in the “up fronts” and otherwise support broadcasting through advertising.
Advertisers see the value in supporting broadcast programming and would likely be unfairly harmed if the Local Choice proposal eroded the economics of the current system.
With the push provided by our letter and additional opposition from several other groups, the Senate Commerce Committee has called off plans to vote next week on the Local Choice proposal. According to National Journal, a Commerce Committee aide explained that the proposal needs “more discussion and a full consideration” before it will be introduced again.
The committee still plans to move forward with a reauthorization of the satellite TV legislation without the Local Choice provisions. While we are very pleased with this recent turn of events, there is a possibility the proposal will also come up next year as Congress begins to rewrite the Communications Act. If this attack resurfaces, we will again urge lawmakers to proceed with extreme caution and seek out the views of the advertising community to better understand how Local Choice would affect the financial support for programming.
Posted: Sep 5, 2014 12:00am ET
By Brad R. Newberg, Reed Smith LLP
In shorthand, the Internet Corporation for Assigned Names and Numbers (“ICANN”) is the entity that controls the rules of the road when it comes to the Internet. For the most part, it decides how registries and registrars must operate, what kind of disputes can be resolved and how, and – in the case of the new gTLD program – when and how to expand the domain name system.
It would take far more detail than a blog post to go into how ICANN comes to its decisions and how the organization is structured, but suffice to say that ICANN operates in what is known as a “multi-stakeholder” system, where various interested parties such as registries, registrars, governments, intellectual property holders, and segments of the public each have a say. As has been lamented in the past, interests are often aligned against intellectual property owners, who have a relatively small say in any issue, but that is not the topic of this post.
Recently, there have been questions about the future of ICANN, including whether the United States government will continue to have some oversight over ICANN (whose power currently stems, in part, as the result of a contract with the United States). But a different government-related question is presently far more pressing, and that question has to do with the Governmental Advisory Committee within ICANN, also known as the “GAC.”
Already perhaps the most powerful segment of the ICANN community, the GAC has been seeking to make its influence known and increase its power of late. The GAC is a committee of many national governments (more than 100), although it also has some observer members, which include UN agencies and other multi-national organizations.
The GAC typically meets face-to-face in closed meetings at ICANN’s own large public meetings, which happen three times a year, and any “advice” to ICANN that results from those meetings is released soon thereafter. However, that advice usually takes the form of a short “Communiqué” that often does not state its rationale or any back-and-forth in positions or votes that resulted in the advice—in fact, GAC can list its advice as the “consensus” of GAC, even if only a couple of countries vote and the rest abstain (as might have happened with the .AMAZON issue described below).
The GAC is a powerful entity because its advice, under ICANN’s bylaws, must be taken into consideration, and where ICANN’s Board proposes actions inconsistent with GAC advice, it must give reasons for doing so and work with the GAC to reach a mutually acceptable solution.
Because of the political and private nature of the GAC, some advice is released with seemingly no rationale whatsoever. For example, Amazon applied for dozens of gTLDs, but the cornerstone of all its applications was .AMAZON. The .AMAZON application passed its initial evaluation and was ready to be accepted when Brazil and Peru were able to get GAC “consensus” advice that .AMAZON should not be allowed. This was the case even though the river and its region are not even known as “Amazon” in those countries (but rather Amazonia), and neither country had applied for a community TLD for that string. It is possible that few or even no other countries voted on the issue. However, ICANN accepted the GAC advice to reject the .AMAZON application.
How far GAC members will go with this sort of advice is unknown. It is possible that the GAC might want ICANN to go a step further and start reviewing and potentially eliminating second-level domain names, the identifier to the left of the dot in the overall domain name (e.g., the “ANA” in ANA.NET) in existing and future TLDs, where the second-level domain name has a string that could potentially be the same as a geographic region.
There is no question that there may be limited instances where governments have specific expertise and interest and, perhaps in those areas, the GAC should get extra credence: for instance, security issues. But it does not appear that ICANN has done any analysis regarding when the GAC advice should outweigh the rest of the multi-stakeholder system, and, instead, seems willing to give GAC carte blanche on any issue the GAC wants to address.
In addition, while the GAC already wields significant power, ICANN has recently proposed an amendment to its bylaws that would force ICANN to adopt all GAC advice unless two-thirds of ICANN's non-conflicted board members vote to oppose the advice (and since many board members do have conflicts, some GAC advice would require a near-unanimous vote of the ICANN board to reject). ICANN is accepting the first round of public comments on this proposed change until September 14, 2014, and reply comments until October 6. Comments can be sent to email@example.com.
ICANN appears to be moving very quickly on this issue, especially given its possible dramatic effect, with little time for opposing views or analysis. This proposed change, if it were to be accepted, would be quite fundamental, so companies or their associations may wish to weigh in on this significant matter. In addition, brands and others may wish to get educated on the changes going on within ICANN and how those changes could affect the future of the Internet. As always, you should consult your internal experts and, if necessary, outside counsel, to come up with the right approach for your brand.
Posted: Aug 14, 2014 12:00am ET
Because of the explosive growth of the top level domain and secondary level domain system managed by the Internet Corporation for Assigned Names and Numbers (ICANN) and the potential impacts it may have on trademark holders and advertising, we have asked our general counsel’s office at Reed Smith LLP to provide us periodic updates on the status of developments in this area. ANA continues to strongly believe that ICANN’s activities are extremely important and deserve the focus of the ad community.
Below you will find the first of these periodic reports. If there are issues you wish for us to particularly focus on in the future, please let me know at firstname.lastname@example.org.
ICANN Report by Brad R. Newberg, Reed Smith LLP
As you are likely already aware (but only if you are part of the subset of society at which this post is aimed), ICANN’s program to greatly expand the top-level domain name system by many multiples more than the previous 22 "generic" gTLDs (.com, .org, .net, .info, .biz, etc.) is well underway. Under the new system, entities located anywhere in the world were able to apply to operate a gTLD corresponding to just about any word or phrase, including an organization's name or brand, although the vast majority of TLDs that have launched so far have been strings corresponding to a generic word (“gTLDs”), such as .BIKE or .CLOTHING.
As you also may be aware, this program has caused a great deal of (pragmatic and reasonable) consternation among brand owners who were worried that the new gTLD program would lead to rampant cybersquatting. Future posts will have more about that, but this post asks the question: Putting aside cybersquatters, domainers (those who speculate in domain names for profit), and in-house counsel at brandowners, when it comes to the public at large, if a TLD launches in a forest and no one is there to hear it, will it make a sound?
A Quiet Entry and Exit? ICANN’s purported reason for launching the new TLD program was to open up domain names in non-Latin characters (through new TLDs in Arabic, Chinese, etc.), foster competition, increase consumer choice, and offer alternatives to individuals and businesses who might have been shut out of their preferred .com name. However, the actual launch of these TLDs has seen practically no advertising, resulting in a collective yawn from the general public—most of whom are blissfully unaware that any new TLDs exist. In fact, given the registration numbers, it is hard to imagine that most of the already-launched TLDs will still be around in two years. None has failed so far, but it is possible that the first TLD to close its doors will start a domino effect.
A Look at the Numbers Almost 200 new gTLDs have launched, passed through sunrise (the period where only trademark owners could register second level domain names), and are in the general availability phase (where anyone can register a domain name). Some have been in general availability for more than six months, although for almost all of the gTLDs, a significant portion of their registrations came in the first few days of general availability. According to the statistics, approximately 1.8 million domain names have been registered across those 200 domains, for an extremely low average of 9,000 domain names per gTLD. But those numbers are misleading as the actual number of registrations is far lower. Many gTLD registries have taken to reserve names in dummy registrations either to sell them later for premium prices or to pump up their numbers, or they have given domain names away for free just to make the gTLD seem popular. For example, the #1 gTLD registry right now is .XYZ with a staggering 25 percent of all registrations (almost 450,000). However, only a small fraction of those domains have been paid for by actual end-users or even domainers investing in the name—some have stated that .XYZ appears to have a goal of getting to a million registrations whether those registrations are paid for or not. Even where the numbers have not been artificially inflated by the registries, many of the domain names were bought early by domainers hoping to flip the name for profit. When one looks at the actual number of end-user registrants—importantly, they are the registrants likely to actually renew registrations when they come due (typically in a year)—it is hard to imagine the total actual number being outside the mid six-figures (and probably far lower), for an average of closer to 3,000 registrations per gTLD. .BERLIN, .CLUB, and .GURU are the only gTLDs above 50,000 registrations, and only 35 gTLDs have more than 10,000 registrations (regardless of who owns them—domainers, end-users or otherwise). The gTLD that went into general availability first (by a day), the Arabic word for .WEB, has registered fewer than 2,000 domains in six months. By contrast, .COM has 114 million domain registrations and still nets (new registrations minus discarded registrations) almost a million each month.
Success May Depend on the Big Brands Given that the gTLDs have been launched for profit—as opposed to supporting brands—one would think that there is a profitability threshold well above 10,000 names. It is possible that many of the gTLDs will do their best to stick around for a year after launching general availability, see what their renewal figures are, and then close shop if the numbers do not meet whatever threshold they have set for themselves. Ironically, their survival might depend on the success of the .BRAND TLDs, almost none of which has launched yet. The large brands that have applied for TLDs have the money to market their new TLDs if they so choose and make their new TLDs a key part of their marketing strategy. If they do, and if the public latches on, perhaps that will fuel interest in the non-brand gTLDs. If not, the whole system could fail and few will have the stomach to apply for more gTLDs when the second round comes around.
Brand Protection In terms of brand protection, brandowners have different options. Some companies have taken a wait-and-see approach given that this territory is uncharted—especially as opposed to the costly approach of blanketing the gTLD landscape with defensive registrations. Some companies have taken a mix and match approach to the following options: 1) paying approximately $3,000 for a block across the gTLDs run by the registry “Donuts,” since Donuts operates a significant number of TLDs and $3,000 is less than what it typically costs to go through a Uniform Domain-Name Dispute-Resolution Policy (UDRP) proceeding; 2) putting important marks on the Trademark Clearinghouse List (TMCH), and responding to the TMCH notices when a threat arises and monitoring for cybersquatting and typosquatting as usual; and, 3) registering domain names for important marks during the Sunrise period for gTLDs associated with a company’s particular industries. You should consult your internal experts and, if necessary, outside counsel, to come up with the right approach for your brand.
Posted: Aug 13, 2014 12:00am ET
Data security is an increasingly important issue for advertisers around the globe. On a virtually weekly basis, there are media reports telling of new instances of hackers stealing important consumer information from vulnerable companies and government agencies. These hacking attacks have been the largest in history. The attack on Target, for example, affected 40 million credit cards and over 70 million records were stolen. Just last week, a private security company issued a report stating that Russian hackers collected roughly 1.2 billion online usernames and passwords. And on top of this, the ability of typical passwords to provide a strong baseline of security has come into question.
This ongoing theft of valuable private information has raised many important issues about how to better secure this information and protect consumers. It also poses the question of who is to blame. In a recent push, the FTC is looking to place that blame squarely on the company which leaves the information available to theft. The FTC already has brought 50 major data security cases and is currently in the process of suing Wyndham Hotels and Resorts LLC for data security breaches that led to more than $10.6 million in payment card fraud losses.
The FTC claims that firewalls, data encryption, or other “reasonable” security measures to protect consumers' financial information were not used by Wyndham. Earlier this year, a U.S. District Court Judge ruled that the FTC has enforcement authority in the realm of data security and that the agency could proceed with the lawsuit. In her ruling, Judge Esther Salas stated that the FTC has authority under the unfairness prong of Section 5 of the FTC Act to bring data security enforcement action, and that the FTC doesn’t need express authority from Congress to take that action under the FTC Act nor does it need to promulgate prior data security regulations.
At the end of July, the Third Circuit Court of Appeals granted a hearing of Wyndham’s appeal to dismiss the FTC data security enforcement action. Members of the business community across the country are carefully watching for the decision in this case.
At the same time, the Department of Health and Human Services (HHS) is expected to issue a rule in the near future regarding the compensation owed to individuals who have had their health information stolen. Currently the precedent is that, unless a victim can show that material harm resulted from the theft of their data, no monetary compensation is rewarded. However, HHS is considering whether a loss of privacy itself is a sufficient harm to award patients a portion of penalty settlements paid by health care providers who violate the Health Insurance Portability and Accountability Act (HIPAA). This decision could have far reaching precedential impacts. If the loss of any personal information alone can trigger the need for individual monetary settlements, even if the data is never used to take money from or otherwise harm the individual, all collectors of data including advertisers will be facing far greater financial risks.
In May, ANA joined with fifteen other industry groups to call for Congress to pass federal data breach legislation this year. ANA firmly believes the time for Congressional action is now. A unified, federal law that preempts the patchwork of 47 inconsistent state laws would help businesses better comply with data breach standards and ensure the safety of customer data. Advertisers are fully on board with complying with a well-crafted federal standard. However, the government must be careful to avoid consumers being bombarded by insignificant breach notifications by assuring that the standard focuses only on significant breaches that can cause real harm to consumers.
Posted: Aug 5, 2014 12:00am ET
The House Ways & Means Committee’s Subcommittee on Select Revenue Measures held an important hearing last week to discuss the proposed tax reform plan from Committee Chairman Dave Camp (MI-4). The hearing was directed to investigating “The Dynamic Analysis of the Tax Reform Act of 2014,” and what impacts the proposal will have on tax revenue, job generation, and economic activity.
Chairman Camp’s plan has many laudable goals, including decreasing the corporate tax rate from 35 to 25 percent to make the United States more competitive with foreign tax regimes. The plan, however, also includes a proposal to amortize 50 percent of advertising expenses over a period of 10 years, radically breaking from the way businesses have historically been able to deduct the full cost of advertising on an annual basis. This proposal has been estimated to impose on the ad community an additional $169 billion in taxes over 10 years.
During last week’s hearing, we were very pleased that the amortization of advertising expenses was not swept under the rug during discussion of the macroeconomic impact of Camp’s tax plan. Curtis Dubay, a research fellow at the Heritage Foundation, testified during the hearing that the amortization proposal would increase the cost of capital and ultimately be a drag on the economy. In his written testimony, he stated, “This would deny businesses the ability to deduct these routine business expenses and thus overstate their taxable income.”
In addition to Mr. Dubay’s testimony, The Advertising Coalition (TAC), which includes beyond the ANA the American Advertising Federation (AAF), the American Association of Advertising Agencies (4A’s), the Grocery Manufacturers Association (GMA), and the National Association of Broadcasters (NAB), has submitted a statement to be made part of the record of the hearing. In TAC’s statement, the Coalition points out that the amortization proposal would have severe adverse impacts on job generation and economic activity in the United States. The letter also cites the IHS Global Insight study which estimates that advertising expenditures account for $5.8 trillion in economic output in the United States. This is equal to 17.2 percent of the $33.8 trillion in total U.S. economic output in 2013. Furthermore, advertising helps support 21.7 million jobs, or 16 percent of the jobs in our country annually. The Coalition urges the Committee to remove the proposed limits on the tax deductibility of advertising as it moves forward on the tax reform package.
Together with TAC, ANA will continue to work toward removing the advertising amortization proposal from any upcoming tax reform legislation. It is vitally important that everyone involved in advertising work together as a united front to secure the protections our industry was granted over 100 years ago when the federal tax code was first established. Legislators should know that their unprecedented actions would have a severe negative impact on our country’s economy moving forward.
Posted: Jul 25, 2014 12:00am ET
Corporate tax inversions are grabbing headlines. Inversions are an international tax strategy where a company relocates its headquarters to a lower tax nation while maintaining its primary operations in a country with a higher tax burden. The U.S. tax code allows for an inversion if the acquired foreign company maintains a 20% interest in the U.S. acquiring company. More and more prominent U.S. companies, such as drug-maker AbbVie and medical device maker Medtronic, are making multi-billion dollar purchases of foreign competitors and re-incorporating abroad. Walgreens is also considering an inversion, and recently Pfizer made an unsuccessful bid for foreign based Astra-Zeneca. There were 47 tax inversions in the last decade – twice as many as in the previous two decades – and the trend is accelerating.
The uptick of inversions now has caught the full attention of policymakers in Washington. This week, the Senate Finance Committee, led by Chairman Ron Wyden (D; OR), held a major hearing focused on improving the current U.S. system of international taxation. The United States currently has a nominal corporate tax rate of 35%, which is the highest compared to other major industrialized countries.
President Obama and a number of members of the Senate Finance Committee expressed outrage that corporate inversions are occurring at such a rapid pace. As Chairman Wyden put it, inversions are a “virus” that seems to “multiply every few days.” The Senate Finance Committee, however, was split over whether immediate remedial legislation would be effective or was an appropriate response to the inversion challenge.
All of the Senators in attendance and the witnesses on the panel, nevertheless, wholeheartedly agreed that comprehensive tax reform is critical to the continued success of the United States as a global competitor and making sure the impact of inversions is nullified.
Chairman Wyden stated that he is committed to working on a bipartisan basis, with particular support from Ranking Member Orrin Hatch (R; UT), to rapidly overhaul the tax code and reform the system. As he stated, “The longer we wait, our tax base will keep eroding, cash piles overseas will continue to grow, and investment dollars will be driven overseas.“
In another signal that tax reform efforts are starting to be reenergized, the House Ways and Means Committee’s Subcommittee on Select Revenue Measures (Tax) has announced a hearing on the economic impact of Chairman Camp’s tax reform proposal.
Clearly, a major tax reform push is appearing increasingly inevitable. What the ad community needs to continue to be on guard against is that, in the effort to cure the inversion threat and other tax problems, the healthy parts of the tax code, like the ad tax deduction, which has been estimated to promote as much as $5.8 trillion in economic activity and to generate 21.1 million jobs annually in the U.S., are not severely harmed.
Proposals to amortize 50% of advertising expenses over five or ten years continue to be pending in both the House and Senate tax committees. It has been estimated that this amortization proposal would cost the ad community more than $169 billion in additional taxes over 10 years. These proposals would not further the expressed goal of strengthening the economy and bolstering companies in the United States. By substantially increasing the cost of doing business and burdening the selling process, amortization would defeat the clear purposes of comprehensive reform.
At ANA, we believe that overhauling the tax code to lower corporate tax rates is extremely important and must be accomplished as quickly as possible. This effort must be done, however, with great care and forethought. Any proposed legislation must not undermine economic activity and the selling effort in the United States by threatening the viability of advertising in the tax code.