NEW YORK (Bloomberg) — Software and computer companies such as Microsoft Corp., Hewlett-Packard Co. and Dell Inc. are gearing up to fight an Obama administration plan to curb offshore tax avoidance.

The $15.5 billion proposal in President Barack Obama's 2011 budget targets what the Internal Revenue Service calls the growing problem of so-called transfer pricing. The technique allows companies to reduce their tax bills by transferring intangible property such as patents, trademarks and licences to offshore subsidiaries.

The Business Software Alliance, a Washington-based trade group that represents technology companies, said it would "educate policy makers" on how the proposal would hurt US companies, jobs and the economy.

"The transfer tax on intangibles, which regulates how expenses and profits from overseas subsidiaries are recognised and taxed, would unfairly punish American firms vis-à-vis their foreign competitors," BSA chairman Robert Holleyman said in a statement. "The US software industry and many other US businesses would pay a steep price in terms of global competiveness."

While the proposal represents less than four percent of the $400 billion in business-tax increases in the budget plan, the debate signals that companies are likely to resist Obama's efforts to raise their taxes to help narrow deficits the administration estimates will total $8.5 trillion over 10 years.

Transfer pricing "is the soft underbelly of the income tax," Samuels said last month. "Nobody understands it."

The administration proposal would force companies to immediately pay US tax when they receive "excessive returns" of more than 30 percent that are traced to intangible property owned by offshore subsidiaries operating in countries with effective tax rates of less than 10 percent, according to an administration official. The law allows companies to defer US tax on those foreign profits until they are repatriated to the US parent company.

Karlinsky said the 10 percent threshold may be designed to exempt countries such as Ireland, which has a 12.5 corporate tax rate. Subsidiaries in countries without a corporate tax such as Bermuda or the Cayman Islands and those in countries offering temporary tax holidays such as Malaysia or Indonesia are more likely to be affected, he said.