Fair Tax Mark: The Silicon Six – and their $100 Billion Global Tax Gap

Fair Tax Mark 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 Fair Tax Mark certification scheme was launched in the UK in 2014, and seeks to encourage and recognise organisations that pay the right amount of corporation tax at the right time and in the right place.

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Facebook, Apple, Amazon, Netflix, Google and Microsoft are some of the world’s biggest companies, and together have a combined market capitalization of $4.5 trillion. They are worth more than the 1,000 companies listed on the London Stock Exchange.

In this Report we look at the enormous scale and impact of the Six, examine their collective tax conduct over the period 2010 to 2019, rank them individually on their tax conduct and end with a couple of suggested remedies.

We concentrate on the information contained in the Form 10-K annual filings in the United States, where they are incorporated. We have also selectively reviewed Form 10-Q quarterly filings and the company accounts of various European and UK subsidiaries. We focus 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).

Our analysis of the long-run effective tax rate of the Silicon Six over the decade to date has found 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. We conclude that corporation tax paid is much lower than is commonly understood. Over the period 2010 to 2019:

• the gap between the expected headline rates of tax and the cash taxes actually paid was $155.3bn

• the gap between the current tax provisions and the cash taxes actually paid was $100.2bn

The bulk of the shortfall almost certainly arose outside the United States, given this ‘foreign’ activity accounts for more than half of booked revenue and two-thirds of booked profits. 10-K filings do not breakdown cash taxes paid, but it is noteworthy that the foreign current tax charge was just 8.4% of identified foreign profits over this period (which is a third of the consolidated current tax charge, at 25.3%).

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

We have also looked at reported Unrecognized Tax Benefits (UTBs), or tax contingencies. These have rocketed in recent years, increasing fourfold from $8.9bn at the end of 2010 to $41.6bn in the most recent suite of 10-K filings. They have even continued to increase post-2017 and the implementation of the US Tax Cuts and Jobs Act, which indicates that historic aggressive tax avoidance is not only unresolved but still growing. In addition to the combined $41.6bn of uncertain tax positions, the Six have accrued a further $5.7bn in connected interest and penalties. Put another way: the Six have a combined $47bn of unrealised net income due to aggressive tax positions. Moreover, a review of the latest Form 10-Q quarterly filings (in the autumn of 2019) reveals a further $4.81bn of UTBs growth and provides further proof that the Silicon Six’s historic tax avoidance is very much a matter of current concern.

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.

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. They are being considered or progressed in, for example: Austria, Czech Republic, France, India, Italy, New Zealand, Spain and the UK. We believe that investors need to look afresh at the future impact that this will have on company valuations and income flows. This is not least because the OECD is now leading multilateral efforts to address the tax challenges from digitalisation of the economy have significant consumer-facing activities and generate their profits”. This might even include a fundamental rewriting of the rules that determine where and how much tax multinational corporations pay tax around the world: with new global anti-base erosion rules that would ensure companies pay at least a minimum rate of tax, even when they are operating in low-tax jurisdictions.

To read the full report click here

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