Google, Alphabet Could Be Big Winners From Intel-IRS Tax Dispute
Alphabet ( GOOGL ), which owns search leader Google, could collect least $3.5 billion in new tax benefits if Intel ( INTC ) succeeds in its longstanding international tax dispute with the Internal Revenue Service, according to the Wall Street Journal. The speculated amount exceeds Google’s entire 2015 tax cost, according to a report Monday by the Journal. Alphabet, Intel and the IRS all declined to comment. “If Google is $3.5 billion, there must be many other companies that have billions of dollars at stake on this issue,” Reuven Avi-Yonah, a tax law professor at the University of Michigan, told the Journal. Alphabet is “paying a huge amount of attention to this case, because this is probably the largest unresolved tax issue that high technology companies now have,” Eric Ryan, a partner at the law firm DLA Piper, told the newspaper. The broader tech industry is also watching the case, which the IRS appealed to the 9th U.S. Circuit Court of Appeals last week. At least 20 companies, including Microsoft ( MSFT ) and eBay ( EBAY ), have disclosed that they also are monitoring the outcome of the case involving share-based compensation, according to the report. The dispute has been brewing since 2003, part of a battle between the IRS and companies over what are known as cost-sharing arrangements between U.S. corporations and their low-taxed foreign subsidiaries. In its annual report, Alphabet recorded a potential $3.5 billion benefit, citing a lower court’s ruling. That was offset by a $3.5 billion deferred tax liability, meaning it didn’t result in a major one-time boost to the company’s earnings, the Wall Street Journal said. In its 10-K, Alphabet said it couldn’t take the whole tax benefit because it hasn’t decided whether it can and would put any gains, should Intel win, into its own offshore subsidiaries — keeping its money outside the reach of the U.S. The company could record the benefit after the court case concludes. Intel inherited the case from Altera, which it acquired last year. That case involved about $80 million in corporate expenses from 2004 to 2007, according to the U.S. Tax Court decision. Altera’s dispute was about whether share-based compensation — but not salaries — should be included in those costs. Altera challenged an IRS regulation stating that share-based compensation must be included in the cost-sharing pool. The IRS regulation meant that the foreign company had to pay for this and deduct the amount from its lower-taxed income, said the Journal. Alphabet stock was up a fraction in early afternoon trading in the stock market today , near 728. This month, Alphabet posted a Q4 earnings beat , but revenue from the company’s stable of speculative, non-search-related “other bets” missed analyst expectations. Image provided by Shutterstock .