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Big Tech Is Moving Profit to the United States

Posted on Aug. 23, 2021

Several leading U.S. tech companies had a dramatic increase in the domestic share of their worldwide profits in 2020, according to the most recent annual reports available. For the 20 companies examined here, domestic profits in 2020 are estimated to be about $40 billion above what they would have been without passage of the Tax Cuts and Jobs Act. For Big Tech, it appears that the intended effects of the international provisions of the TCJA may be taking hold.

Turnaround

Figure 1 shows combined domestic profits as a share of combined worldwide profits for 20 tech companies from 2016 through 2020. After a small hike from pre-TCJA levels of about 5 percentage points in 2018 and 2019 (from about 30 percent to 35 percent), reported domestic profit jumped another 15 percentage points in 2020 (from about 40 percent to 55 percent). In other words, domestic profits were about one-third of the worldwide total, and now they are more than half.

The table presents company-by-company data. The companies are divided into four categories: (1) nine with large profit shifts into the United States in 2020 (“large” can be either in percentages or dollars); (2) three with large profit shifts out of the United States; (3) six with small profit shifts either into or out of the United States; and (4) other.

The first three numerical columns show percentages of domestic profits in different years. The fourth column shows the percentage point change from the 2015-2016 average (before the TCJA) to 2020 (after the TCJA). The first nine companies increased the domestic share of their worldwide profits from 2015-2016 to 2020 by between 9 and 42 percentage points. The next three companies reduced the domestic share of their profits by between 21 and 71 percentage points. So we can see that although the predominant trend was to reduce profit shifting out of the United States, there is variation among individual companies.

Figure 1. Domestic Profit as Share of Worldwide Profit for 20 U.S. Technology Companies, 2015-2020

The next two columns show actual domestic profits and what we estimate domestic profits might have been if pre-TCJA trends continued. Estimated shares were calculated by multiplying average 2015 and 2016 profit shares by 2020 worldwide profits. The difference between actual and estimated is a crude estimate of the effect of the TCJA on profit shifting. The first nine companies are estimated to have shifted a whopping $59.8 billion into the United States in 2020 because of the TCJA. Microsoft Corp. at $19.7 billion accounts for one-third of this total; Alphabet Inc. at $15.3 billion accounts for one-quarter. Facebook Inc. with $8 billion and Apple with $6.3 billion account for another quarter. This handful of giant companies accounts for the bulk of tech profit shifting to the United States. After the top nine, the remaining 11 had net increases of approximately $20 billion out of the United States. So estimated net profit shifting into the United States in 2020 resulting from tax reform is $39.4 billion.

Amazon.com and Dell Technologies are in their own category because their circumstances are so different from the rest. In the case of Amazon, the statistics could give the appearance of a company aggressively shifting profits out of the United States after the TCJA. But with foreign losses in 2015-2016 and a foreign profit share of only 16 percent in 2020, it might be more appropriate to characterize that company as evolving into a geographic distribution of profit that can be readily justified. In the case of Dell, the company consistently reported worldwide losses — the result of U.S. profits more than offsetting reported foreign profits — over the 2015-2020 period. The estimated $9.6 billion post-TCJA shift of profit just reduced reported losses in the United States; if this reported income is anywhere close to taxable income, it probably raised no revenue.

Everybody’s Different

Figure 1 tells us that overall, Big Tech moved a lot of profit to the United States in 2020. Previously, we showed that Big Pharma moved a lot of profit out of the United States in 2020. That work, summarized in Figure 2, shows that the domestic share of worldwide profits of 10 of the largest U.S. pharmaceutical companies hovered between 22 and 26 percent between 2015 and 2019 and then plunged to 11 percent in 2020. (Prior analysis: Tax Notes Federal, Mar. 8, 2021, p. 1513.) Just as the table shows a considerable variation in the movement of profits across borders within the tech sector, comparing Figure 1 with Figure 2 shows considerable variation across sectors.

Table. Domestic Profit Shares of 20 U.S. Tech Companies and Estimated Impacts of the TCJA
(dollars in billions)

 

Percentage Domestic Profit

Domestic Profit 2020

Estimated Post-TCJA Profit Shift in 2020

2015-2016

2018-2019

% of 2020

2020 Change Since 2015-2016

Actual

Estimated

Companies with large increases:

Microsoft

22%

34%

49%

28%

$35

$15.3

$19.7

Alphabet Inc.

46%

43%

78%

32%

$37.6

$22.3

$15.3

Facebook

49%

35%

73%

24%

$24.2

$16.3

$8

Apple

34%

32%

43%

9%

$29

$22.6

$6.3

Cisco Systems Inc.

21%

41%

54%

33%

$7.5

$2.9

$4.6

Qualcomm Inc.

45%

-78%

87%

42%

$5

$2.6

$2.4

Thermo Fisher Scientific Inc.

34%

35%

66%

32%

$4.8

$2.5

$2.3

HP

9%

4%

30%

20%

$1

$0.3

$0.7

Netflix

71%

58%

87%

17%

$2.8

$2.3

$0.5

Companies with large declines:

Applied Materials Inc.

23%

11%

2%

-21%

$0.1

$1

-$0.9

Adobe

60%

32%

26%

-34%

$1.1

$2.5

-$1.4

IBM

34%

6%

-37%

-71%

-$1.7

$1.6

-$3.3

Companies with small changes:

Intel

58%

59%

62%

4%

$15.5

$14.6

$0.9

Texas Instruments Inc.

78%

85%

87%

8%

$5.2

$4.7

$0.5

Nvidia Corp.

28%

49%

33%

5%

$1.4

$1.2

$0.2

Cognizant Technology Solutions Corp.

33%

32%

39%

6%

$0.8

$0.7

$0.1

Oracle Corp.

33%

29%

34%

1%

$4.4

$4.3

$0.1

Micron Technology Inc.

11%

0%

10%

0%

$0.3

$0.3

$0

Other:

Dell Technologies

161%

149%

-29%

-190%

-$1.1

$5.9

-$7

Amazon.com

123%

111%

84%

-40%

$20.2

$29.8

-$9.6

Source: Author’s calculations using 10-K reports filed with the SEC.

Figure 3 provides the overall picture, showing domestic profits as a share of worldwide income for all publicly traded U.S. multinationals from 2009 to 2020. In the aggregate, the domestic share of profits as a share of worldwide income didn’t appreciably rise in the two years after passage of the TCJA. But then in 2020 it rose from 51 percent to 56 percent — a considerably smaller increase than the 15 percentage point jump for Big Tech shown in Figure 1.

Figure 2. Domestic Share of Worldwide Profits of 10 Large U.S. Pharmaceutical Companies, 2015-2020
Figure 3. Domestic Profit as a Share of Worldwide Profits, Publicly Traded U.S. Multinationals, 2009-2020

One year of data cannot be relied on to establish a trend, especially if in that year the world experienced a pandemic-induced economic upheaval. But for now — based on the data available — it seems that after a two-year delay, the intended effects of the international provisions may be taking hold.

Note on the Data

Of the 20 tech companies, only nine had fiscal years ending December 31. The figures presented here under the 2020 heading correspond to fiscal years ending in July 2020 for Cisco Systems Inc.; September 2020 for Apple, Qualcomm Inc., and Micron Technologies Inc.; October 2020 for HP and Applied Materials Inc.; November 2020 for Adobe Inc.; January 2021 for Dell; and June 2021 for Microsoft and Oracle Corp.

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