If you are also wondering how big tech companies avoid taxes then read this post in its entirety. How big tech companies avoid taxes You can get the answer to this question in a very simple language.
Today we marvel at the big tech companies not because of their ability to reinvent and remain relevant but because of their ability to avoid paying taxes and even receive refunds. the silicon 6 are some of the biggest offenders in what could be described as tax antics a gang also known as fang made up of facebook amazon apple Netflix and google aka alphabet plus Microsoft in 2018 amazon earned 10 billion dollars in income.
You’re probably thinking they had a big tax spill right nope instead they earned $129 million dollars in rebates now that’s impressive making enough money to buy a country and still getting a pizza party thrown for you on a taxpayer’s dime.
So how do these mother hustlers manage to dodge the taxman and bring home billions while you and I barely bring home the bacon after paying our share well we’re about to unpack some of this in how tech companies made billions and paid zero taxes.
It’s Not Illegal But It’s Also Not Right
Imagine being given an exam and then being asked to write down the questions you want to be asked well that’s how big tech and a lot of companies, in general, get full marks for tax evasion.
They have money and clout to campaign or lobbyists they call it in the u.s for exactly the tax breaks they want it’s legit and they aren’t necessarily backroom deals the institute on taxation and economic policy did their homework on this big tech taxation avoidance the authors Matthew Gardner and steve Wamhoff explain by all appearances the companies described in this report appear to be using entirely legal means to reduce their tax bills.
So legal yes but does it make it right nope they still use public resources like roads and infrastructure public health care homeland security and they have access to all the benefits of the rules and protection of a country that any company enjoys yet they aren’t contributing to the upkeep of these services but small businesses and taxpayers are.
What are the Figures That We’re Talking About
The savvy crew at the institute on taxation and economic policy analyzed the sec filings of fortune 500 companies
And found 60 major corporations that didn’t report any federal income tax expenses in 2008. 11 of those are tech or transportation companies in the 2018 financial year amazon reported a US income of 10.8 billion dollars,
Instead of paying any federal tax on that, they received a one percent tax return which equates to $129 million dollars in refunds in a statement to CNBC an amazon spokesperson noted that amazon paid billions in taxes other than the federal income taxes including state and local taxes.
They also reported that amazon had created more than 250,000 jobs at that time but many of these are low-paid workers who rely on subsidized government services like schooling transport and medical services.
The spokesperson went on to explain that Amazon pays all the taxes we are required to pay in the u.s and every country where we operate including paying $2.6 billion dollars in corporate tax and reporting 3.4 billion dollars in tax expenses over the last three years.
Corporate tax is based on profits not revenues and our profits remain modest given retail as a highly competitive low margin business and our continued heavy investment we suppose that’s why Jeff Bezos has such a modest income
And if you think that’s bad IBM posted 500 million dollars in income and received 68 back which equates to 342 million dollars in rebates you might say that the US government is IBM’s biggest customer but will this bubble burst we think so stick around to find out how?
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The Tax Cuts and Jobs act of 2017 Left a Poor Public Inheritance
This isn’t a new habit of the rich and infamous tech companies but in 2017 things got a whole lot easier the trump administration’s tax cuts
And jobs act of 2017 didn’t address any of the concerns related to how the major US corporations dodged taxes instead the new act actually favored it the act brought corporate tax to 21 down from 35 it also allowed companies to immediately write off the cost of capital investments in equipment via accelerated depreciation,
Other perks included tax breaks on executive stock options or on research and experimentation previously research and development or Rnd which brings us to our next glaring loophole.
R&D Has Become Scapegoat
Research and development R&D or research and experimentation has always been part of the write-off costs of business while you might say that this drives investment and innovation the truth is that tech businesses don’t need more tax incentives to innovate or seek investment That is core to what makes their product succeed incentive,
Or no incentive it’s like the way Starbucks offers you loyalty stars but you probably would have gone there anyway right R&D incentives pre-date the digital era where innovation is the product,
Or perhaps enough Srivastava an associate professor at the Haskin school of business in Canada puts it best in this explanation. the idea that RnD is discretionary that you need to incentivize companies to invest in RnD is long gone for these kinds of companies R&D is required for their survival.
Covid and Tax Breaks Like the Cares Act
when disaster strikes it’s important for the government to respond with tax breaks that protect businesses however special tax allowances don’t always benefit the most vulnerable,
For example, the cares act that the u.s rolled out to minimize the economic impact of the covid 19 pandemics allowed big business to cash in the institute on taxation, and economic policy reported that the cares act provided a new avenue of tax avoidance by allowing companies to carry back losses to offset previous profits.
in other words, instead of paying tax the 21 required on the previous year’s profits many receive tax rebates on their 2020 profits in dollar bills that means that instead of the 55 biggest companies that avoided us federal tax-paying in 8.5 billion dollars in tax they received 3.5 billion dollars in tax rebates from the US government.
that’s right in a time when the government needs more tax income to be able to provide immediate aid to the public they instead paid out 3.5 billion dollars to big business.
Stateless Income and Tax Havens
Another bit of fancy footwork big tech can use with ease is creating stateless income this is in effect moving their profits to tax havens and reporting their losses in countries where the tax is high,
and so are tax returns for expenses like R&D so what is a tax haven countries like Bermuda Luxembourg or Ireland attract big business to their shores by offering little or no company taxation this is an awesome offer.
So big tech and other multinational companies set up their head offices in these regions from here they do all of their invoicing and let the bankroll in the UK is a huge income territory for Facebook.
They posted 1.3 billion dollars in annual sales but only paid 40 million dollars in taxes to the UK government this is because they based their headquarters in Dublin Ireland to benefit from the lower tax rate.
At the same time across the world in countries that offer great tax back for skills development asset investment or our dear friend R&D, they set up small offices with the sole purpose of spending money.
This can generate income for the company in the way of refunds it’s the same as if these companies were using a rich uncle’s money to train up a specialized workforce with the skills they need to succeed or giving your staff a bonus or getting an interest free loan to build a huge fancy campus and also getting tax credits for the investment except the rich uncle is the government and his money is our money the taxpayer now you stuck with us until the end, of course, we have saved a bonus for you.
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Change is Coming to Big Tech Taxes
In April 2021 the organization for economic cooperation and development or OECD met to discuss global tax arrangements the Biden administration from the US proposed a document to 137 countries that lay out universal taxing for multinational corporations.
This means that the likes of big tech won’t be able to hide profits in tax havens and show losses in other territories but rather pay a global minimum the universal figure proposed was a 21 corporate tax across the board no matter where the head office is based.
This equates to an additional 81 billion dollars in income globally to go to the government where the sales are taking place that is 3.2 percent of all global corporate income tax revenues which to date isn’t being collected.
You must know the answer to this question of how big tech companies avoid taxes and how is that possible. If you have read this post in its entirety, thank you very much. Also, if you have not read this post in its entirety, you must read it.
Because you must know how big tech companies avoid taxes? This is the question you will hear in many places, in which case you must know the answer.