How Tech Companies Made Billions and Payed 0 Taxes

You May Think Big Tech Companies Pay Huge Taxes Every Year, But That’s Actually Not True. Find Out.

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 Six’ are some of the biggest offenders in what could be described as tax antics, a gang also known as FAANG made by of Facebook, Amazon, Apple, Netflix and Google aka Alphabet, plus Microsoft.

In 2018 Amazon earned $10 billion in income, you’re probably thinking that they had a big tax bill, right? Nope. Instead, they earned $129 million in rebates. Now that’s impressive. Making enough money to buy a country, and still getting a pizza party thrown for you on taxpayer’s dime.

So, how do these mother hustlers manage to dodge the tax man 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 0 taxes.

Welcome to Alux.com – the place where future billionaires come to get inspired. If you’re not subscribed yet, you’re missing out.

In today’s world of technology, reading an article sounds outdated. Switch out to the video version of this article:

With that said, let’s move forward with the article.

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. That’s how big tech, and a lot of big companies in general get full marks for tax evasion.

They have the money and clout to campaign, or lobby as they call it in the US, for exactly the tax breaks they want. It’s legit and 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 that 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. Small business and the taxpayer are.

So, What Are the Figures We’re Talking About?

The savvy crew at the Institute on Taxation and Economic Policy, analysed the SEC filings of Fortune 500 companies and found 60 major corporations that didn’t report any federal income tax expenses in 2018. Eleven of those are tech or transportation companies.

In the 2018 Financial year, Amazon reported a US income of $10.8 billion. Instead of paying any federal tax on that, they received a 1% tax return, which equates to $129 million 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 subsidised 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 US and every country where we operate, including paying $2.6 billion in corporate tax and reporting $3.4 billion in tax expense over the last three years.

Corporate tax is based on profits, not revenues, and our profits remain modest given retail is a highly competitive, low-margin business and our continued heavy investment.” We suppose that’s why Jeff Bezos has such a “modest” fortune.

If you think that is bad, IBM posted $500 million income, and received 68% back, which equates to a $342 million rebate. You might say that the US government is IBM’s largest customer.

Will this bubble burst? We think so, stick around to find out how.

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 major US corporations dodge tax. Instead, the new act actually favoured it.

The act brought corporate tax to 21% 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 R&D.

Which brings us to the next glaring loophole…

R&D Has Become a Scapegoat

Research and development, R&D, or Research and Experimentation, has always been a part of the write off costs of business. While you might say, but this drives investment and innovation, the truth is that Tech business didn’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. R&D incentives pre-dates the digital era where innovation is the product.

Or perhaps Anup Srivastava, an associate professor at the Haskayne School of Business in Canada puts it best in this explanation. “The idea that R&D is discretionary, that you need to incentivise companies to invest in R&D is long gone. For these kind of companies, R&D is required for their survival.”

COVID and Tax Breaks like the CARES Act

When disaster strikes it is important for government to respond with tax breaks that protect businesses. However, special tax allowances don’t always benefit the most vulnerable. The CARES Act, for example, that the US rolled out to minimise the economic impact of the Covid-19 pandemic 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 received 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 in tax, they received $3.5 billion in tax rebated 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 $3.5billion to big business.

If big trades fascinate you then why not consider mastering crypto trading. Alux has created a course that teaches you all you need to know about blockchain and crypto currency trading. Go to alux.com/bitcoin and enroll now!

If you have some concerns about bitcoin, check out 10 Biggest Misconceptions About Bitcoin.

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 attracts 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 their invoicing and let the bank roll in.

The UK is a huge income territory for Facebook. They posted $1.3 billion in annual sales but only paid $40 million in taxes to the UK government. This is because they based their head quarters in Dublin, Ireland to benefit from the lower tax rate.

At the same time, across the shores in countries that offer great tax back for skills development, asset investment or our dear friend R&D, they set up smaller offices with the sole purposes 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 specialised workforce with the skills that 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 the tax credits for the investment. Except the rich uncle is government, and his money is OUR money, the taxpayer.

But big tech is being called out for these tactics, and this is about to change.