People in IT are used to seeing the industry lead the way. That’s what you get when you’re working in a sector that’s leading edge, innovative, revolutionary, etc. For the most part, it can be a source of pride that IT has played such a large part in disrupting and altering the flow of modern life.
But one area where, perhaps, there ought to be a modicum of embarrassment is in the IT sector’s approach to one of the great certainties of life: taxation.
According to a note from Moody’s, five US tech companies – Apple, Microsoft, Google, Cisco Systems and Oracle – account for 46% of the nearly $1.7 trillion in cash held overseas. Top of the heap for the sixth year in a row is Apple with $215.7 billion.
That’s money kept overseas because US companies don’t want to pay the 35% corporation tax to repatriate their cash to the US. Which is a problem because the cash they’re keeping out of the US keeps growing. According to Moody’s, the percentage of cash held overseas by technology companies is likely to increase over the next year because “of the sector’s strong cash flow generation”.
While I’m no mathematical genius, it would appear the refusal of US businesses to bring their cash home has deprived the US government of nearly $600 billion in tax revenue over the years (although it’s probably not quite as high as that, as the companies would get credits for the tax they had already paid to foreign governments).
As that $1.7 trillion stockpile so amply proves, this is not a new issue. The US has been here before when the government responded to heavy lobbying from companies and announced an amnesty on overseas profits in 2004. The companies responded by bringing stacks of cash back and investing the money they saved from not paying corporation tax into the economy and creating jobs.
Er… no, they didn’t.
Instead, most of the (untaxed) money went on dividends to shareholders – nothing innovative, revolutionary or leading edge there.
Admittedly, the US corporation tax rate of 35% is high compared to many economies around the world, such as our own here in Ireland. But the existence of a huge and growing cash mountain outside the US not only provides concrete evidence of the scale of the profits US companies are making, it also shows they are eminently capable of paying a 35% tax rate and still retain substantial profits for themselves. They just choose not to do so.
Instead, they have opted to hold their own money hostage until the US government agrees to their ransom demands and lets them bring it back. So, maybe the IT industry is being innovative and revolutionary after all.
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