Tech giants have been hit with a number of pieces of bad news recently. In addition to the growing scrutiny that many companies have faced over the past years in regards to how they manage the data of their users, tech giants are now going to have to pay billions in extra tax payments that they’ve otherwise been fighting against paying. On Monday, the top court in the United States decided to rule against tech giants in a decision that would see these companies pay billions in extra taxes now owed.
The U.S. Supreme Court declined to entertain a challenge to old corporate tax regulations, a move that’s seen as a big win for the IRS at the expense of billions of dollars for companies like Google, Facebook, and Twitter, among many others. The court wrote in a brief order that it wouldn’t be considering an appeal brought by Intel, leaving a lower court ruling issued back in 2003 intact.
The regulations in question comes down to how these companies can split costs between their foreign subsidiaries. Many of these subsidiaries happen to be located in lower-taxed areas, which means that their owners can split costs in such a way as to reduce the amount of tax they owe. This corporate loophole has helped some companies save billions in dollars. While the issue is a bit more complicated than it appears, involving legal and tax technicalities, the end result will be that many well-known tech giants will end up paying up significantly to the IRS.
“If a substantial division of authority concerning the validity of the 2003 final rule develops in the future, this Court’s review may be warranted at that time,” wrote lawyers for the government according to the Wall Street Journal. “But petitioners identify no pressing reason for the Court to intervene now.”
Google went on to say that this ruling would cost them at least $418 million, while Facebook said that for 2019, the ruling would cost them around $1.6 billion. Despite this news, most tech giants ended Monday up quite a bit, with most being up in after-hours trading going into Tuesday morning. Google also announced that it expects ad revenue to decline significantly due to COVID-19, something that isn’t all that surprising for most investors.
Google Company Profile
Alphabet is a holding company, with Google, the Internet media giant, as a wholly owned subsidiary. Google generates 99% of Alphabet revenue, of which more than 85% is from online ads. Google’s other revenue is from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue. Sales of hardware such as Chromebooks, the Pixel smartphone, and smart homes products, which include Nest and Google Home, also contribute to other revenue. Alphabet’s moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), faster Internet access to homes (Google Fiber), self-driving cars (Waymo), and more. Alphabet’s operating margin has been 25%-30%, with Google at 30% and other bets operating at a loss. – Warrior Trading News