Tech companies rejected by top court on tax breaks

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The U.S. Supreme Court refused to question a ruling that technology companies including Facebook Inc. and Google say will cost them billions of dollars in taxes by limiting deductions for stock payments to employees.

The justices without comment Monday turned away an appeal by Intel Corp.’s Altera unit, which challenged an Internal Revenue Service regulation that forces companies to allocate some of those stock expenses to foreign subsidiaries.

Many of the subsidiaries are in tax havens such as the Cayman Islands, where deductions for stock-pay expenses are almost worthless because the companies don’t have much of a tax liability there.

Facebook and Alphabet Inc.’s Google were among more than two dozen companies that urged the Supreme Court to take up Altera’s appeal. The Trump administration asked the high court to leave intact a federal appeals court decision backing the government.

The Supreme Court’s action represents a loss for the tech companies, but a win for the IRS, which has been seeking to more strictly regulate how U.S. companies use offshore subsidiaries to cut their tax bills.

The total sum of tax deductions that tech companies will lose isn’t known, but will likely reach tens of billions of dollars, said Chye-Ching Huang, the senior director of economic policy at the Center on Budget and Policy Priorities, a left-leaning group that seeks to reduce inequality.

“It’s also hugely important beyond what it means for the individual taxpayers,” she said. “The IRS and Treasury Department are overwhelmed and underfunded and having trouble policing the boundaries of the tax laws.”

Technology firms rely on stock-based compensation because it lets employees and executives share in the growth of the company without burning through cash. Investors like it because it can encourage employees to think about market value in addition to product development.

Technology firms, including Amazon.com Inc, Facebook and Google, could also face new foreign taxes as international negotiations over a digital tax have broken down. The U.S. earlier this month walked away from talks at the Organization for Economic Cooperation and Development, which is seeking an agreement among almost 140 countries on a global tax overhaul to address how multinationals — particularly big tech companies — are taxed in the nations where they have users or consumers.

An international deal would prevent dozens of countries from implementing their own digital taxes, many of which are scheduled to go into effect at the beginning of 2021.

The case is Altera v. Commissioner of Internal Revenue, 19-1009.

Bloomberg News