Aug 4, 2017

Taxes top tech firms' list of worries

Tax liability is among the tech industry's biggest concern when it comes to regulatory issues affecting their business, according to a BDO analysis of recent annual shareholder reports from the 100 largest publicly traded firms. Potential U.S. tax reform and global tax regulations top the list.

Why it matters: Tax and trade changes affect all businesses, but tech companies are especially sensitive to tax structures because of their global supply chains and reliance on foreign markets for manufacturing and customers. President Trump's tax reform framework released in April is still very much in flux. Still, many tech companies are reserving their political capital in Washington to take on the issue.

Data: BDO Technology Riskfactor Report, 2017; Chart: Andrew Witherspoon / Axios
Data: BDO Technology Riskfactor Report, 2017; Chart: Andrew Witherspoon / Axios

Tax changes: A reduction of the corporate tax rate from 35% to 15% is generally liked by corporate America. Shifting to a territorial tax system (which would tax U.S. companies only on what they earn within the U.S. rather than on profits earned around the world) would benefit global companies that generate profits abroad. And a one-time tax holiday allowing companies to repatriate overseas cash could bring back billions of dollars. As the FT notes, Apple, Microsoft, Cisco, Oracle and Alphabet alone have $512 billion in offshore cash holdings.

In addition, multinational companies could be affected by international rules designed to combat tax avoidance strategies used by companies to artificially shift profits to low- or no-tax locations.

"You've got a situation where you're getting a lot of activity from both sides," David Yasukochi, managing partner of BDO's tax office, told Axios. "In the U.S. and tax reform, and there've been some highly publicized situations where EU has gone after Google and Apple on the tax front with some staggering numbers, and that's why it's gotten everyone's attention."

Other risks: International policy changes driven by the Trump administration is also weighing on tech companies' minds, BDO found.

  • Protectionist trade concerns: 44% of tech companies mentioned Brexit as a risk to business this year, and 46% mentioned the ability to expand abroad as a risk. Growing competition from China is also a worry.
  • Data regulations: 78% of tech companies cite increased compliance requirements with cyber and privacy regulations as a risk. The EU's GDPR takes effect next year (Axios has a primer here).
  • Labor: New restrictions on H-1B visas for high-skilled workers continue to worry tech companies that are more dependent on high-skilled workers than other industries. And 92% of companies cite issues with attracting and maintaining their workforce.
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