Big Tech on the hook for billions in back taxes after US Supreme Court rejects Altera stock options case hearing
- Reference: 1592859366
- News link: https://www.theregister.co.uk/2020/06/22/supreme_court_tax_stock/
- Source link:
America's top court [1]said [PDF] on Monday it will not review a decision by the Ninth Circuit of Appeals that stock-based compensation should be considered a US taxable asset.
The case concerns the tax years 2004-2007 and Intel-owned tech company Altera, which provided its employees with the ability to buy company shares at a set price in future - a common practice in the tech industry. But that benefit was not included in an accounting of an Altera subsidiary based in a Cayman Islands tax haven just prior to Intel's purchase.
The shifting of intangible assets has become a common tax-reducing tactic by large tech companies and saves those companies billions of dollars every year that they would otherwise pay to US tax authorities.
However, the Internal Revenue Service (IRS) insisted that Altera’s stock-option compensation be taxed under US tax rules. Facing a massive tax bill- Altera refused to accept the rule and challenged it in court, arguing that "the amount of money at stake is enormous."
The company accused the IRS of over-reach and claimed it had not provided sufficient evidence to prove its case. And Altera won with a unanimous decision in tax court.
But the IRS appealed and the Ninth Circuit then found in the IRS’ favor, arguing in its 2-1 [2]decision [PDF] in June 2019 that it was “uncontroversial” that stock options should be treated as accounting costs. It then refused a request for the whole court to rehear the case. So Altera appealed the decision to the Supreme Court.
Big Tech weighs in
Among the companies that urged the Supreme Court to take up the case were Apple, Google and Facebook - all of which now face massive tax bills for having done exactly the same thing.
Yahoo ! owes ! us ! one ! billion ! dollars ! in ! back ! taxes ! say ! US ! govt ! beancounters ! [3]READ MORE
The tech giants argued that the Ninth Circuit decision threatened to ruin “the hard-won but fragile international consensus on treatment of hundreds of billions of dollars of intercompany payments.” In other words, land them with massive, unexpected tax bills.
Ranged against the tech giants were a clump of law professors who argued that the IRS was right to make stock-option compensation a taxable asset.
It’s hard to know the true impact on those companies but the bills are extra to run to billions of dollars, possibly tens of billions. But in a sign of just how big those companies have become the Supreme Court judgment had no impact on share prices this morning - Wall Street knows quite how much cash these companies are sitting on.
If that news wasn’t bad enough however, there is a bigger tax issue hovering over Big Tech: the so-called digital tax threatened by the European Union, which is also fed up with companies like Google, Apple and Facebook paying almost no tax in their countries because of creative accounting through subsidiaries.
That digital tax became more likely this month after the US walked away from discussions at the Organisation for Economic Co-operation and Development (OECD) that were focused on developing a global tax agreement for digital companies.
With the OECD approach faltering, the EU has already made it clear that it will introduce its own version of a digital tax that is likely to make tech giants pay much more to countries in which they operate. Those new taxes are expected to kick in at the start of 2021. ®
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[1] https://www.supremecourt.gov/orders/courtorders/062220zor_mjn0.pdf
[2] https://cdn.ca9.uscourts.gov/datastore/opinions/2019/06/07/16-70496.pdf
[3] https://www.theregister.com/2020/06/17/yahoo_irs_lawsuit/
[4] https://go.theregister.com/tl/1956/-8470/taking-the-cloud-native-approach-with-microservices?td=wptl1956
just a reminder
The money that companies use to pay taxes is money that they've taken from you. If you raise their taxes, they will raise their prices to cover.
Re: just a reminder
"If you raise their taxes, they will raise their prices to cover."
No. They will hopefully lose market share to local companies who have to pay their fucking tax.
> they make their money here they can pay some tax here
Depends how you look at it. I work in the UK for one of these companies, and the UK gets all the tax on my income, NI, VAT, council tax etc. The US gets tax on the stock grants - the company is listed on a US stock exchange, so that seems only fair (the case seems to have been about Altera hiding stock-related tax that should have been paid in the US because that is where the stock transactions occur).
Personally I like the Irish model, i.e. keep corporate taxes low so that companies benefit from setting up local operations with high-value jobs - the kind of jobs that attract high income taxes. Then the money goes into the local economy via payroll taxes which are very hard for anyone to get around. Company profits are very much less than what is paid in staff salaries, so the tax take on a % of profits is less than a % of staffing costs.
Taxing profits tends to make companies use the money internally - by growing - rather than paying out dividends. Encouraging businesses to grow is good up to the point where they can no longer grow their market, but must attack the business of other companies (and thereby put other people's jobs at risk).
"Personally I like the Irish model, i.e. keep corporate taxes low so that companies benefit from setting up local operations with high-value jobs - the kind of jobs that attract high income taxes. Then the money goes into the local economy via payroll taxes which are very hard for anyone to get around. Company profits are very much less than what is paid in staff salaries, so the tax take on a % of profits is less than a % of staffing costs."
I downvoted you because you are essentially saying
"Personally I like the parasite model. Drive direct taxxes to companies as low as possible to they move to low-tax jurisdictions, taking both jobs and tax money from other countries."
Of course, that's a stupid argument because it leads to an arms race and then the only winners are corporations and their shareholders. Everybody else loses. Fuck The Other Guy is a game that works if you only play once, but in the long run it doesn't. The Irish model is despised by all of the countries that it's fucked over.
"the only winners are corporations and their shareholders"
The winners also include the countries small enough to take advantage of the open market in taxation of multinational corporations.
"Personally I like the Irish model"
The Irish model is dependant on having a relatively small population and local economy. By bringing in multi-nationals a low tax rate on their turnover is large in relation to what the country would otherwise earn and the local businesses also benefit from a low corporation tax rate. Whilst you may personally like the Irish model it's not a model that's universally applicable.
A small contribution to countries' Covid-19 costs...
...gratefully received on behalf of the many
Re: A small contribution to countries' Covid-19 costs...
From the companies creating the tech that's allowed us to weather life in these times.
Re: A small contribution to countries' Covid-19 costs...
"From the companies creating the tech that's allowed us to weather life in these times."
And they did it all because of the love in their hearts, and a trillion-dollar valuation.
"the amount of money at stake is enormous"
Officer, you can't ticket me, the cost of that ticket compared to my paltry revenue is enormous.
Inspector, you can't arrest me, the cost of losing my freedom is enormous.
Your Honor, you can't put me in jail, the cost of losing my illegal drug cartel is enormous.
. . .
Man, the ways that argument could be used is dizzying.
My heart bleeds purple kool-aid for the techies. Instead of trying to actually invest in product they instead invested in tax dodges.
IT's late and I'm kinda dumb
It's probably obvious. But not to me. Why is stock based compensation taxable to the corporation rather than the employee who receives it? It sort of sounds like the IRS is saying that the costs of paying employees in part with stock options aren't legitimate business expenses. Maybe not. But it'd be nice to have an explanation of why not.
Re: IT's late and I'm kinda dumb
I am not a lawyer, or an accountant, and certainly not a tax specialist.. But I think it's this-
it will not review a decision by the Ninth Circuit of Appeals that stock-based compensation should be considered a US taxable asset.
Which always struck me as a bit odd, but then so does much of modern finance. So seemed to me that if anything, it's a liability, ie money due to employees assuming they survive long enough for it to vest. I'm guessing there are devils in the details, ie if I have an option at $25 and stock price when it vests is $100, company needs to find shares either in the market, or from unissued stock and books a $75/share loss. That then reduces company tax liability. So my guess is the options should be treated as assets at the prevailing value, or just can't book the loss.
How employees get shafted is down to their own tax circumstances, so when I worked for a US company, some staff like Germans and I think French had to pay tax as soon as the options were awarded, even if they wouldn't vest for 2-3 years or more.
Big Tech has been getting away with stashing their taxes for long enough, it's about time they paid some more taxes.
I am waiting to see what happens when the European rules get tightened up and Trumps isolates America a bit more with another lot of sanctions, they make their money here they can pay some tax here.