Tax gap of Silicon Six over $100 billion so far this decade

The Fair Tax Mark will later this week release a new report, The Silicon Six and their $100 billion global tax gap, which examines the tax conduct of Facebook, Apple, Amazon, Netflix, Google and Microsoft over the last decade.

The report questions whether the companies, collectively referred to as the ‘Silicon Six’, are paying their way on tax. Together they have a combined market capitalization of $4.5 trillion and are worth more than the 1,000 companies listed on the London Stock Exchange.

The report finds that there is a significant difference between the cash taxes paid and both the expected headline rate of tax and, more significantly, the reported current tax provisions. It concludes that the corporation tax paid by the Silicon Six is much lower than is commonly understood. Over the period 2010 to 2019:

The report suggests that the bulk of the shortfall almost certainly arose outside the United States, given that the foreign current tax charge was just 8.4% of identified foreign profits over 2010-19.

Profits continue to be shifted to tax havens, especially Bermuda, Ireland, Luxembourg and the Netherlands.

Investors are warned that 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.

In terms of ranking, none of the Six is an exemplar of responsible tax conduct. However, the degree of irresponsibility and the relative tax contribution made does vary. Amazon has paid just $3.4bn in income 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.

Chief Executive of the Fair Tax Mark, Paul Monaghan said: “Our analysis of the long-run effective tax rate of the Silicon Valley Six over the decade to date has found that there is a significant difference between the cash taxes paid and both the headline rate of tax and, more significantly, the reported current tax provisions. We conclude that the corporation tax paid has been much lower than is commonly understood.

“The international tide is turning on the acceptability of corporate tax avoidance. The idea of countering the profit-shifting of Big Tech multinationals via the introduction of digital sales taxes has taken root in many countries. 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.”

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 (as opposed to the total tax and / or current tax provisions, which are predominantly the focus of media analysis and policy consideration to date).

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. When multinational corporations abuse their tax responsibilities to society, they weaken the supports that our economies need to work well and create wealth. 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. By ensuring multinational corporations pay their fair share locally for the wealth created locally by people’s work – based on an agreed formula and supplemented by a minimum effective tax rate – governments can strengthen their economies to run smoothly and make a good life possible for everyone.”

The Report is available for download here: The Silicon Six and their $100 billion global tax gap

Ranking of poor tax conduct