The push by the current Administration for a global minimum tax rate is gaining steam or has gained steam, so – as a number calculated on the valuation spreadsheets for mega-cap Tech holdings – I was curious as to how the “Big 5” in the SP 500 look in terms of their effective tax rate and if this could be partly the cause of the weakness seen in mega-cap Tech this Spring ’21.
Apple: 6% market cap weight within SP 500
- 4-quarter: 15% effective tax rate
- 12-quarter: 15% effective tax rate
- 20-quarter 18% effective tax rate (begins June ’16)
- 40-quarter: 22% effective tax rate (starts in 2010/2011)
Microsoft: 5.7% market cap weight within SP 500
- 4-quarter: 14% effective tax rate
- 12-quarter: 13% effective tax rate
- 20-quarter: 16% effective tax rate
- 40-quarter: 18% effective tax rate
Amazon: 4.3% market cap weight within SP 500
- 4-quarter: 12% effective tax rate (very lumpy)
- 12-quarter: 13% effective tax rate
- 20-quarter: 16% effective tax rate
- 40-quarter: 4% effective tax rate (that is surprising)
Facebook: 2.27% market cap weight within SP 500
- 4-quarter: 13% effective tax rate
- 12-quarter: 18% effective tax rate
- 20-quarter: 19% effective tax rate
- since IPO: 29% effective tax rate
Alphabet: 4.6% A & C class market weight within SP 500
- 4-quarter: 16% effective tax rate
- 12-quarter: 13% effective tax rate
- 20-quarter: 15% effective tax rate
- 40-quarter: 17% effective tax rate
Summary / conclusion: There is always more to the discussion than the headlines, so any firm agreement will have to be parsed and we’ll have to see how the effective tax rates actually change if there is an agreement. Supposedly, Ireland has already opted out of the proposed G-20 plan since the Emerald Isle got the memo in the late ’80’s, early 90’s and reduced effective tax rates sharply for those global companies that wanted to locate their manufacturing operations in Ireland. Intel and Merck and a number of other large-cap pharma companies promptly did relocate some manufacturing operations, and the Irish probably don’t want to disrupt that dynamic.
If a 15% rate is agreed upon (and again, the fine print will have to be looked at) it appears there shouldn’t be that much impact on mega-cap tech or the Big 5 as they are otherwise known.
The other issue is US corporate tax rate increases, which the Biden Administration so desires.
Geeky stuff, but I was curious as to how the tech companies would fare.
Take this all with a healthy grain of salt and substantial skepticism. Any US corporate income tax increase could supersede the global rate and could be harsher than the what the G-20 is contemplating.
Thanks for reading.