Intel’s win in an international tax dispute with the Internal Revenue Service could prove beneficial for Google. With Intel’s win, the search giant may gain at least $3.5 billion in new tax benefits, an amount that is well above Google’s entire 2015 tax cost, says a report from The Wall Street Journal.
Tech firms closely monitoring the case
Intel got involved in the case after it acquired Altera last year. As per the U.S. Tax Court decision, the case relates to about $80 million in corporate expenses from 2004 to 2007. In simple words, the dispute was whether share-based compensation, unlike salaries, should be included in that pool of costs. The company claims share-based compensation had to be included in the cost-sharing pool, but the IRS maintains that the foreign company had to pay for this and that the amount must be subtracted from its lower-taxed income.
Last week, the IRS referred the case to the Ninth U.S. Circuit Court of Appeals. The case is closely watched in the tech industry with at least 20 tech firms, including Microsoft and eBay, admitting that they are monitoring the outcome related to share-based compensation.
Eric Ryan, a partner at law firm DLA Piper, told The WSJ, “They’re paying a huge amount of attention to this case, because this is probably the largest unresolved tax issue that high-technology companies now have.”
Intel wins to have big impact on Google
The fight is a part of an ongoing war between the IRS and companies over the cost-sharing arrangements between U.S. firms and low-taxed foreign subsidiaries. Intel’s case will have the biggest impact on Google, which, in its annual report, “recorded a potential $3.5 billion benefit, citing a lower court’s ruling. That was offset by a $3.5 billion deferred tax liability, meaning it didn’t result in a major one-time boost to the company’s earnings,” says The WSJ.
In the filing, the search giant noted that it may not take the full benefit as it has not yet decided if it will put the money it will get after Intel wins into its foreign subsidiaries. As of now, there has been no comment on the matter from Google, Intel or the IRS.
Speaking to The WSJ, a tax law professor at the University of Michigan, Reuven Avi-Yonah, said, “If Google is $3.5 billion, there must be many other companies that have billions of dollars at stake on this issue.”
The amount excludes the gain that the companies, including Google, will benefit from in future years if Intel wins.