Tax gap of silicon six over $100 billion so far this decade 

A new report has laid bare the extent of tax avoidance from six of the biggest US tech firms.

The Silicon Six and their $100 billion global tax gap, examined the tax conduct of Facebook, Apple, Amazon, Netflix, Google and Microsoft since 2009 and found evidence of industrial-scale tax avoidance.

Researchers found that the gap between the expected headline rates of tax and the cash taxes actually paid was just $155.3bn,  much lower than was previously thought.

In addition, the gap between the current tax provisions (the amount the companies expected to pay) and the corporation tax actually paid was $100.2bn.

All were found to be shifting profits to tax havens especially Bermuda, Ireland, Luxembourg and the Netherlands.

Amazon the top tax avoider in the Silicon Six

Amazon was found to be the worst culprit and has paid just $3.4bn in corporation taxes this decade, whilst Apple has paid $93.8bn and Microsoft has paid $46.9bn.

This is a staggering variance, especially as Amazon’s revenue over this period exceeded that of Microsoft’s by almost $80bn. Fair Tax Mark said this means Amazon’s effective tax rate was just 12.7% over the decade when the headline tax rate in the US has been 35% for most of that period.

Amazon said the report’s “suggestions are wrong” and that the company had “a 24% effective tax rate on profits from 2010-2018”.

Amazon said the company’s “profit margins are low” and that “naturally results in a lower cash tax rate.”

The report concentrates on the information contained in the Form 10-K annual filings in the United States, where the companies are incorporated. It has also selectively reviewed Form 10-Q quarterly filings and the company accounts of various European and UK subsidiaries, focussing our attention on the cash taxes paid.

Chief Executive of the Fair Tax Mark, Paul Monaghan:

“Our analysis of the long-run effective tax rate of the Silicon Valley Six over the decade to date has found that the corporation tax paid has been much lower than is commonly understood.”

Campaigners have also long been pushing for a change in international accounting practice to help bridge this tax gap. Alex Cobham, Chief Executive, Tax Justice Network, said:

“This report demonstrates why we need a fundamental reprogramming of the world’s approach to tax, based on a unitary taxation. A unitary approach to tax means we can finally make sure multinational corporations contribute tax based on where they employ workers and do business, not where they rent mailboxes and hide ledgers”

Investor warning

The report also issued a stark warning to investors. The collective tax contingencies of the Six have rocketed in recent years, increasing fourfold from $8.9bn at the end of 2010 to $47bn in 2019.

They have also accrued a further $5.7bn in connected interest and penalties. In total, the Six have more than $50bn of unrealised net income due to their aggressive tax positions.

Paul Monaghan added,

“Investors need to look afresh at the future impact that this will have on company valuations and income flows. Not least because the OECD is now leading multilateral efforts to address the tax challenges from digitalisation of the economy, and is looking to ensure that profitable multinationals pay tax wherever they have significant consumer-facing activities and generate their profits.”

Ranking from the Fair Tax Mark report The Silicon Six and their $100 billion global tax gap”:

1st: Amazon

Stands out as the business with the poorest tax conduct, having paid just $3.4bn in income taxes this decade. The cash tax paid was 12.7% of profit over the decade, at a time when the federal headline rate of tax in the United States was 35% for seven of the eight years under examination.

The company is growing its market domination across the globe on the back of revenues that are largely untaxed, and can unfairly undercut local businesses that take a more responsible approach.

The situation is unlikely to reverse soon given the $9.3bn of operating loss carry forwards available to offset against future profits and taxes.

2nd: Facebook

The cash tax paid as a percentage of profit was just 10.2% over the period of study (the lowest of any of the Silicon Six) at a time when the federal headline rate of tax in the United States was 35% for seven of the eight years under examination. Has the lowest foreign current tax charge ratio of Silicon Six over the decade, at just 5% of profits.

Reported contingencies for uncertain tax positions have quadrupled over the last six years and now stand at a significant $7.16bn.

3rd: Google

 In June 2019, sought to put the record straight on their tax conduct and asserted that: “Google’s overall global tax rate has been over 23% for the past 10 years, in line with the 23.7% average statutory rate across the member countries of the OECD.” In fact, the cash tax paid as a percentage of profit was just 15.8%.

The trend of low current tax provision in connection with foreign profits continues in 2018, with just $1.25bn booked on $19.1bn of foreign profit, giving a booked current tax rate of just 6.5% - this is less than the company’s already low average for the decade, which is 7.1%.

4th: Netflix

Proved to be the most difficult to rank. The cash tax paid as a percentage of profit was just 15.8% (the same as Google).

Operate thin margins (just 5.3%) and as a result the cash taxes paid as a percentage of revenue are a tiny 0.8% - which is less than a fifth of the ratio generated by Microsoft, Apple and Google. Reported foreign profit margin is even slimmer, at 4.3%.

5th: Apple

Presents itself as “the world’s largest taxpayer” and it certainly makes the largest tax contribution of the Silicon Six, having paid $93.8bn in income taxes this decade (albeit on profits of $548.7bn and revenue of $1,888.0bn). However, cash tax paid as a percentage of profit over the decade is still a relatively low 17.1%.

The trend of low current tax provision in connection with foreign profits continues in 2019, with just $3.9bn booked on $44.3bn of foreign profit, giving a booked current tax rate of just 8.9%.

6th: Microsoft

Our analysis suggests that Microsoft, by a slim margin, has the least aggressive approach to tax avoidance of the Six. Makes the second-largest tax contribution of the Silicon Six, having paid $46.9bn in income taxes this decade (on profits of $278.5bn and revenue of $882.5bn). However, the cash tax paid as a percentage of profit is still a relatively low 16.8%.

Microsoft’s tax contingencies continued their annual growth through to 2019, to hit a significant $13.1bn – and were the highest of the Silicon Six for most of the decade.

Free Issue

Sign up now to our email newsletter for a free digital copy of Ethical Consumer magazine.

Sign up now for our email newsletter