The answer, based on our back-of-the-envelope calculations: Probably, yes.
But that doesn’t mean that some of the juicy tax benefits the sector has enjoyed aren’t about to come in for some close scrutiny. A case in point: the near-$500m tax benefit Apple got last year for keeping cash parked offshore rather than returning it to the US.
The question in the headline above arises because the White House, trawling for ways to plug corporate tax loopholes and fill a yawning fiscal deficit, has just come up with ways to trim back on the tax privileges of US companies that operate internationally.
The tech industry’s lobbyists in Washington have gone into overdrive. This is not aimed solely at tech, but the high share of revenues these companies get from overseas (70 per cent in HP’s case) makes them a prime target. The simultaneous effort to throw tech a bone by making the R&D tax credit permanent is a clear attempt to soften the blow.
One lobbyist we spoke to made the point that tech, for all its globe-trotting, still pays a hefty chunk of taxes in the US: as a young industry, without the history of lobbying that brings with it an accumulation of tax breaks, it has relatively few shelters for its profits.
Is this true? We compared the effective tax rates in recent years of a handful of the biggest tech companies (Microsoft, HP, IBM, Apple and Oracle) to other well-known US multinationals (GE, Procter & Gamble, Coca-Cola.) The broad picture: the techs tend to face all-in tax rates of 26-30 per cent, compared to the low-20 per cent range for the non-tech companies (and much less for GE, whose non-finance operations have faced tax rates of 11-16 per cent over the last three years.)
Critics, of course, will complain that any effective rate that falls much below the 35 per cent US corporate rate points to an unjustifiable leakage of tax revenue from the US. But if US companies can organise their non-US operations in a way that allows them to realise higher profits in low tax countries (like Ireland – corporate tax rate 12.5 per cent) then so much the better for them: it has no impact on the tax take in the US.
Fairness, however, often takes a back seat to political expediency. And in that regard, the cash that US tech companies have been piling up offshore makes a highly visible target. HP, Microsoft and Oracle between them have more than $30bn of overseas investments that they say they plan to invest indefinitely abroad – the test that keeps it out of the US tax net. Apple’s net income would have been 10 per cent lower last year had it not been for this benefit.
The good news is that despite the fears that had been brewing in tech circles for a while, the Obama administration has not mounted a direct attack on this privilege. But it has started to chip away at the edges, and until the detailed proposals are out it will be hard to assess the full impact.
