WASHINGTON – The US Supreme Court declined to hear a challenge to corporate tax rules and delivered a victory to the IRS that will cost technology companies billions of dollars.
In a brief written order on Monday, the court said it would be an appeal from Altera Corp., now Intel Corp. heard, do not take into account. This is without prejudice to an appeal court decision that upheld the 2003 Internal Revenue Service regulations.
The regulations define how companies share costs with their overseas subsidiaries, which are usually located in countries with lower taxes. The costs at issue here are share-based payments that are widely used in the tech industry. Tax law generally requires that companies determine these internal divisions based on what independent companies would do in a similar transaction. However, the IRS approaches to determining this breakdown have been reviewed repeatedly.
The companies wanted more costs to be spent on US operations. This would increase their US deductions and lower their income at the relatively high US tax rates in place through 2018. Lower costs abroad mean higher profits abroad, which are taxed at lower rates.
Affected companies are Facebook Inc., Alphabet Inc., and Twitter Inc. Total tax revenues exceed $ 2 billion and could be much higher as some companies have waited to record the impact on their books pending court cases. Facebook said it paid $ 1.6 billion in November 2019 in connection with the appeals court ruling. Alphabet, the parent company of Google, said the ruling cost $ 418 million. Twitter reported an impact of $ 80 million.