Intel Unit Case Could Cost Big Tech $2B In Taxes

A tax dispute between Intel and the Internal Revenue Service could cost large technology companies billions of dollars, according to a report by The Wall Street Journal.

Altera Corp, acquired by Intel, which inherited the case, sued the IRS in 2012. The lawsuit was over a 2003 regulation that gave specific instructions on how companies have to account for equity compensation and stock that they pay to workers when figuring out cost balances between a parent company and its foreign counterpart. Altera said the IRS was overstepping its authority in the matter.

The case has been rolling along for years, and the latest ruling was in June. Since then more than 20 companies have revealed how they think the case could affect them financially. 

Facebook disclosed a $1.1 billion tax expense due to the case, and Alphabet turned around on a $418 million benefit. Companies like Twitter, Lam Research and Symantec all said they would be affected for at least $50 million.

Right now a federal appeals court in San Francisco is looking over the ruling to decide if there will be another hearing.

The case hinges on the fact that global companies get the greatest benefits from assigning as much as possible, including stock-related compensation, to U.S. operations, so they can claim a business-expense deduction, which saves money.

In other countries, reporting lower costs means lower tax rates, which was fortuitous for many companies, especially before a 2017 tax overhaul that closed the gap between the rates.

The 2003 rule made it mandatory for companies to share the costs with foreign subsidiaries more equally. Some companies were upset over the way they had to calculate the difference, which would be done by figuring out how much they would have to pay a company that was unrelated for similar services. 

The regulation hit Altera hard, and its taxable income increased $80 million through four years. Altera received a favorable judgement in 2015, but it was overturned in 2018. However, the ruling was withdrawn over the death of a judge who made the decision. In June, a new panel re-affirmed the previous decision.

Intel has appealed that decision, and if that fails, it could also appeal to the U.S. Supreme Court.