That offshoot of Richard Murphy, the Fair Tax Foundation, has decided to tell us all that the big tech companies are proper little tax cheats. There is at least one slight problem with their calculation though.
Bolstering demands for a global minimum tax to rein in corporations’ evasive tactics, a new analysis released Monday showed that a half dozen Big Tech companies based in the United States paid almost $100 billion less in taxes over the past decade than stated in their annual reports.
Between 2011 and 2020, Amazon, Facebook, Alphabet (the owner of Google), Netflix, Apple and Microsoft — known as the “Silicon Six” — paid roughly $219 billion in income taxes, which amounts to just 3.6% of their $6 trillion-plus in total revenue, according to the Fair Tax Foundation. Income tax is paid on profits, not total revenue, and researchers said these tech giants are adept at reducing their tax liabilities by shifting profits to offshore tax havens.
OK, so that’s Salon and we’d not expect them to get economics or accounting – hell, counting – right. But people putting themselves forward as experts on tax systems do need to have a certain expertise about tax systems.
The Silicon Six analysis concentrates on the information contained in the Form 10-K annual filings in the United States, where the companies are incorporated. We have also selectively reviewed the company accounts of various European and UK subsidiaries, focussing attention on the cash taxes paid (as opposed to the total tax and / or current tax provisions, which are predominantly the focus of media analysis and policy consideration to date).
For the bulk of the decade (2011-17), the US operated a 35% headline rate of tax. Thereafter there was a permanent lowering of the top federal corporate income tax rate from 35% to 21% and the introduction of a repatriation tax on previously deferred foreign income at much reduced rates of between 8-15.5%. As of 2018, we have assumed that the foreign portion of profits is taxed at the GILTI maximum of 13.1%.
Well, there’s a certain problem with this.
And this really is something that they should know.
So, those headline profit numbers. They’re before the costs of stock based compensation plans to the staff. Just because that’s how it’s done. And the cash tax paid numbers are calculated from the profits left after the employee stock plans.
And there are specific ways that you’re supposed to deal with the tax paid/not paid on those profits that don’t exist because instead you’ve actually paid them out to the staff as shares. This is part of the explanation for the different numbers. We can even test this. From Apple’s annual results:
The Company’s effective tax rate for both 2020 and 2019 was lower than the statutory federal income tax rate due primarily to the lower tax rate on foreign earnings, including the impact of tax settlements, and tax benefits from share-based compensation.
So, the Fair Tax folks are screaming about corporate taxation rates because they’ve no damn clue about how corporate taxation works.
But then we did note that Richard Murphy is involved, didn’t we?