Large Tech’s tax burden is simply 60% of the worldwide common

TOKYO – The average tax rate for top American IT companies collectively known as the “Big Four” – Google, Apple, Facebook, and Amazon – is about 15% or about 60% of the average among more than 50,000 large corporations worldwide , revealed a recent Nikkei analysis.

The existing corporate tax system is poorly adapted to a digitized economy because it cannot fully take into account intangible assets. The competitive tax cut between nations has tightened in part due to fiscal expansion to combat the coronavirus pandemic. Policy makers around the world are now seeing an increasing need for global tax rules.

Using QUICK-FactSet, Nikkei analyzed financial data from approximately 57,000 large companies around the world and calculated their tax burden ratios by splitting their “corporation tax, etc.” in accounting terms through their pre-tax profits. The average ratios between 2018 and 2020 were then compared.

The average of the quotas for Google parent company Alphabet, Apple, Facebook and was 15.4%, 9.7 percentage points below the global average of all companies of 25.1%.

Big tech companies have little tax burden because “their profits come almost entirely from intangible assets easily located in low-tax areas,” said Reuven S. Avi-Yonah, professor at the University of Michigan Law School.

Internet companies providing services around the world often maintain intellectual property and other assets in countries with low corporate tax rates while making profits in the form of royalties from different countries. This enables them to minimize their overall tax burden. For example, Google, Apple and Facebook have their European headquarters and other offices in Ireland, where the corporate tax rate is only 12.5%.

The digitization of the economy has therefore led to increasing discrepancies in the tax burden of companies of different company categories.

The average load in the electrical, automotive, machine, chemical, materials and energy industries, for example, was 30.7% and was thus about twice as high as that of the four large technology companies. For many companies in the five industries, the rate was over 20%, for example at Toyota Motor 24.8%. The average exposure rate for Japanese companies was 28.3%.

Tax systems tend to focus on sources of profit such as factories and other tangible assets rather than intangibles, said Mindy Herzfeld, a professor at the University of Florida’s Levin College of Law. However, the business models of the companies are changing dramatically, and “the current tax laws have not yet been able to react to the change,” stressed Hertzfeld.

Big tech companies are excited about the idea of ​​global tax harmonization.

“Google’s global tax rate has been over 23% for the past 10 years, which is the average statutory tax rate of 23.7% for members of the Organization for Economic Cooperation and Development,” said Karan Bhatia, vice president of government affairs and the public for Google Politics, in response to a question about Nikkei’s poll results.

“Corporate tax is an important contribution businesses make to the countries and communities in which they do business, and we want a tax environment that people consider appropriate and appropriate,” he added.

Apple believes its tax payments are legitimate, saying, “As the world’s largest taxpayer, Apple pays every dollar it owes in every country in the world.” Amazon pays taxes in accordance with applicable laws and regulations in all countries and regions in which it operates. Facebook declined to comment.

The contribution of corporate taxes to total tax revenue has decreased in many countries. The share of corporation taxes in gross domestic product in the US has been around 2% since 1990, but fell below 1% in 2019. In the UK and Italy it has fallen to less than 3%.

In Japan, corporate taxes remain in the region of 4% of GDP, although they have fallen by around 2 percentage points since 1990.

Countries have competitively lowered corporate tax rates to attract global businesses. These successive cuts have eased their burden on what critics call the “race to the bottom”.

In the meantime, companies, particularly in the United States and Europe, have spent their tax expenses primarily on rewarding shareholders through share buybacks and other means. This has contributed to growing wealth and income inequality.

But the tide seems to have changed since the beginning of the year. U.S. President Joe Biden plans to raise corporate taxes in part to cover the huge spending package his government has pushed through to deal with the economic slowdown caused by the COVID-19 pandemic. As the UK and other countries take similar steps, the global trend towards tax cuts could stall for good.

A review of tax regulations aimed at forcing tech companies to cough more is nearing completion. The OECD has proposed global revisions to tax regulations, such as the introduction of a corporate tax rate. One of the proposals made by the Biden government is to split tax law between nations to reach around 100 multinational corporations. The international negotiations are moving forward to reach an agreement by the middle of this year.

The trick will be to correct imbalances in the tax burden while maintaining economic growth. To eliminate the distorted distribution of wealth that threatens to undermine democracy, countries should work together to achieve consensus on the appropriate tax burden for global corporations.