Google could effectively recoup all the tax it paid last year if Intel wins test case

A tax dispute between Intel and the IRS currently headed to the appeals court could set a precedent that would see Google’s parent company Alphabet reclaiming $3.5B in tax benefits – more than all the tax the company paid last year. The WSJ reports that Google is one of a number of tech giants following the case closely.

The case, which the IRS appealed to the Ninth U.S. Circuit Court of Appeals last week, is being closely watched in the tech industry and elsewhere. At least 20 companies, including Microsoft and eBay, have disclosed they’re monitoring the outcome of the case involving share-based compensation.

In essence, the case hinges on share compensation packages paid by overseas subsidiaries. The IRS says that the cost of these should be offset against the expenses of the overseas companies; Intel says no, the cost should be deducted by the U.S. parent company – reducing its tax liabilities in its home country.

The IRS introduced the rule in 2003. Companies like Google have abided by the rule but reserved the right to reallocate costs if a court ruling went against the IRS, giving them a huge potential windfall.

Google has recently come under fire for its tax arrangements in Europe, a $185M back-tax deal in the UK being described as “disproportionately small” and possibly illegal. France is currently seeking to claim $1.76B from the company in back taxes.

Photo: Reuters