April 23, 2012
Tech Untaxed: Tax Avoidance in Silicon Valley
- In this analysis we look primarily at high-tech companies, a sector of the economy that has boomed despite the recession, with a focus on 30 top tech companies listed in the Fortune 500. Many of these companies are presently supporting a repatriation campaign that would allow foreign profits to be brought back to the U.S. at a drastically reduced tax rate.
- The amount of cash held overseas by these companies shot up by 21% from 2010 to 2011, to just under $430 billion. Apple and Microsoft had the biggest increases in cash held offshore.
- Simultaneously, the tax rate paid by these companies has plunged – from 23.6% in 2009 to 19.9% in 2010 and 16% in 2011. The hypothetical top corporate tax rate of 35% is almost entirely a fiction.
- The tax rate paid by Apple, the world’s most valuable company with a stock valuation that passed $500 billion in March 2012, has dropped even more dramatically. With profits soaring past $34 billion last year, the company’s tax rate fell from 24.8% in 2009 to 14.7% in 2010 and 9.8% in 2011. Apple’s tax rate over the last three years was less than that of middle-income Americans with average household incomes of $64,500 per year; its 2011 tax rate was lower than that of American households making an average of $42,500 per year.
- These 30 tech companies added a net total of 51 foreign subsidiaries from 2010 to 2011. Nineteen of these were in tax haven jurisdictions as identified by the GAO. Sixteen of the companies had 10 or more subsidiaries in tax haven countries.
- Despite claims being made in an aggressive lobbying campaign, repatriation is unlikely to create U.S. jobs or boost the economy. The 2004 repatriation law, which allowed companies to return profits to the U.S. at a sharply discounted 5.25% tax rate, cost the Treasury billions in revenues, while the top 15 repatriating companies actually cut U.S. jobs in the aftermath. The money appears to have gone to investors and executives through stock buybacks, increased compensation to executives and other devices, not into expanded U.S. production or employment. Since the 2004 holiday, the corporations that repatriated substantial sums have built up their offshore funds at a greater rate than before it was enacted, suggesting that the law encouraged the shifting of more corporate dollars and investments offshore in anticipation of another tax holiday.
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Tax Holidays are one-time events that are of short duration. Tax cuts are longer term, allowing affected companies to engage in longer term plans.
BTW, here's a Silicon Valley story for you: A google stock-option millionaire had the choice between cashing out his options while living here in California, paying California state income taxes on his options windfall, spending the remaining money here in California OR he could relocate to Google Switzerland, cashing out his options, paying minimal [ie basically zero?] Swiss taxes, spending the remaining money in his new Swiss living/working environment. He chose to relocate to Switzerland, because he knew that he could better spend the millions in California taxes he would have paid on more beneficial things to humanity than California would ever spend it on.
How's that for complex, punishing tax laws hurting the regular working Joe & Jane. Money that could have been spent in California-USA by a google millionaire is now being spent in Switzerland. As Americans are we better off with a 35% corporate tax rate (that now American company actually pays)? As Americans are we better off with a 'progressive' tax code that punishes individual effort?
Posted by: RM3 Frisker FTN | Apr 25, 2012 3:28:20 PM