Google, Apple, Facebook, Amazon. The debate on corporate income tax in the EU is fixated on. Earlier this week Dutch MEP Paul Tang, and member of the European Parliament’s TAXE committee, was co-author of a short report which looked at potential tax revenue losses from Google and Facebook.
The conclusions require a complete re-working of existing tax law. The tax losses are based on estimated customer revenue shares in EU countries and the global profitability of the companies. That is, if a customers in a country generate 10 per cent of a company’s net sales that country should be able to tax 10 per cent of the company’s total profit. Of course, that is not how the system works but it is indicative of the approach some would like introduced.
What this report has in common with many other reports is that it is difficult to determine how much tax the companies are currently paying. If the argument is that something is “too low” surely we should be told what it is and what it should be. This is rarely shown.
The table here gives the consolidated income statements for Google, Apple, Facebook and Amazon aggregated over the five financial years that ended between 2012 and 2016.
There are a couple of different ways of measuring how much tax a company pays but that one that matters is surely cash tax payments – how much are companies actually paying over to fiscal authorities in corporate income tax payments net of any rebates or refunds received. This is given in the second last line of the above table. From 2012 to 2016 Google, Apple, Facebook and Amazon paid $63.4 billion of corporate income tax.
The companies made provisions to pay around $105 billion of corporate income tax over the period but due to a number of issues (mainly the deferral provisions in the US tax code but also the use of previous losses and tax credits carried forward) the actual amount paid was about one-third less. Still $68 billion is quite a chunk of change.
Of this, the bulk was paid by Apple which is unsurprising as it generates the largest profits. For financial years ending between 2012 and 2016 Apple made $52.9 billion of net corporate income tax payments. Cash tax paid was equivalent to 18 per cent of income before income taxes.
On this measure Facebook comes lowest with cash tax payments equivalent to just 7.2 per cent of income before income taxes. The reasons for this are that Facebook built up substantial losses prior to 2012 and was able to offset these against the positive income it began to generate from 2012. This have been exhausted and of the $1.9 billion of cash tax paid over the five years over $1.2 billion was paid in 2016 alone. In the accounts Facebook indicate that tax payments will rise in further years as offsetting losses are no longer available to be utilised.
The lowest tax payments over the period were made by Amazon but the reason for this is pretty straightforward – Amazon had the lowest profits. Amazon is a prodigious spender on research and development. Of the five year period Amazon used 34 per cent of its gross margin for research and development. This compares to a spend of 15 per cent of gross margin across the other three companies.
Do these companies pay enough tax? That is not what we are trying to answer here. What we can say is that between 2012 and 2016 these companies paid $68.4 billion of corporate income tax which was equivalent to 16.4 per cent of their income before income taxes. What tends to be true of most studies of these companies is that the authors want the companies to pay more tax in certain countries which will almost certainly result in less tax being paid in others.
Who got most of the $68 billion that the companies paid? The US, of course, because that is where most of the profits were generated. And if the US didn’t allow deferral or have rules that allowed US-source income to be treated as “offshore” it would collect even more. And no matter what formulas are used the EU will not simply be able to go and take that taxing right.
The annual income statements for the individual companies are reproduced below.
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