How tax planning affects the behavior of “silicon six” from 2010 to 2019 how tax planning affects the behavior of “silicon six” from 2010 to 2019

Research objectives The goal of this topic is to focus on the study of "How tax planning affects the behavior of "Silicon Six” from 2010 to 2019, in order to answer the analysis of the p

MINISTRY OF EDUCATION AND TRAINING UEH UNIVERSITY - BUSINESS SCHOOL

SCHOOL OF FINANCE TAX PLANNING

UEH

UNIVERSITY

TOPIC HOW TAX PLANNING AFFECTS THE BEHAVIOR

OF “SILICON SIX” FROM 2010 TO 2019

INSTRUCTOR: DANG THI BACH VAN

HO CHI MINH CITY - 2022

NO FULL NAME ID STUDENT CONTRIBUTION

1 Nguyễn Thai Quang Huy 31201025233 100%

2 Nguyễn Yến Long Châu 31201020118 100%

3 Trần Nguyễn Trà Lý 31201022417 100%

4 Tô Thị Bích Ngọc 31201022524 100%

TABLE OF CONTENTS

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2.5 Background of Corporate Tax Rate of “Silicon Six” throughout periods

CHAPTER 3: “SILICON SIX” AND THE GLOBAL MINIMUM CORPORATE 3.1 The situation of tax planning of “Silieon SIx” frơm 2010 - 2019

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3.3 The Global Minimum Corporafe 'ÏaX .- - c Se Set key 19 6a n9 va 19 3.3.2 Agreement and DIsagreemeni( - 5 +5 +++ k+e + +1 3 rên 20 3.4 “Silicon Six” reaction to The Global Minimum Corporate Tax 21 3.4.1 Counfries respond to The Global Minimum Corporate Tax 21 3.4.2 “Silicon S1x” respond to The Global Minimum Corporate Tax 21

CHAPTER 4: DISCUSSION AND CONCLUSIONS c-cceeceee 22

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ABSTRACT Nowadays, as society grows, taxes are the main source of revenue and play an extremely meaningful role with a very important position for each country in the world Under the impact of economic integration, the current period is the development process and the premise for the sustainability of the economy in the world Therefore, the international tax avoidance of "SILICON SIX" enterprises has attracted the public's attention On that basis, the study of the topic of tax planning affecting the behavior of companies is becoming increasingly necessary in today's period

CHAPTER 1: INTRODUCTION 1.1 Reason for choosing this topic

In an era of rapid innovation development, the trend of globalization and

modernization is creating opportunities for businesses to expand faster to integrate into regional and international markets In addition, along with this trend, the phenomenon of tax evasion and avoidance has also become a complex global problem

Avoiding corporate taxes is a global problem Tax avoidance causes significant tax losses and reduces the ability of tax authorities to perform their role in the service of national governance Therefore, corporate tax avoidance is a hot topic in practice between government regulators and academia However, current research on corporate tax avoidance is largely based on the assumption that companies make decisions independently Studies describe factors that influence corporate tax avoidance in relation to factors that influence at the micro-level, such as the operational

characteristics of companies or executive leaders There are also other macro factors such as taxation, level of regional marketization, level of government management, financial development and the location of products in the market, and so on These are the factors that affect the tax avoidance of businesses

1.2 Research subjects

Avoiding taxes make it possible for businesses to save on taxes payable to the government These tax savings are temporarily used as capital for the company to fund the business of the business and moreover increase investment opportunities with the aim of increasing the value of the business

However, tax avoidance will cause the value of the business to decrease, in addition to increasing agency costs For foreign-owned enterprises, tax avoidance will increase the value of enterprises "How tax planning affects the behavior of "Silicon Six" from

2010 to 2019

1.3 Research objectives

The goal of this topic is to focus on the study of "How tax planning affects the behavior of "Silicon Six” from 2010 to 2019, in order to answer the analysis of the purposes of corporate governance, which is summarized in the following typical contents:

- Identify factors that affect tax avoidance by "Silicon Six" companies including Amazon, Facebook, Google, Netflix, Apple, Microsoft

- Make proposals on effective, appropriate and regulated tax avoidance policymaking with the characteristics of each type of business in the "Silicon Six" in the period of 2010 to 2019

1.4 Research questions

Having identified the problem and the reason for the study, the research question is asked with the aim of helping to shape research ideas and formulate scientific hypotheses These questions will be of interest to the study and clarified by answering the following questions:

businesses?

- What should Silicon Six businesses do to avoid taxes effectively but not break the law?

1.5 Scope of research

- The paper focuses on the factors that affect the tax avoidance activities of

"Silicon Six” businesses

- The factors influencing the tax avoidance behavior of businesses are selected in the "Silicon Six" based on the inheritance of previous research, practical application to the world market

- Usage data is collected between 2010 and 2019 Duration of study: 2022

1.6 Research data

The research paper is conducted outlining the theories related to the researched problem, thereby building research hypotheses and research models, the dependent variable here is identified as tax avoidance behavior of businesses belonging to the

"Silicon Six”

Furthermore, the research uses secondary data collected from data in corporate financial statements in the "Silicon Six" between 2010 and 2019 This data source is collected from the official website of each business

1.7 The meaning and application of the topic

This essay aims to assess the factors that influenced the tax avoidance behavior of

"Silicon Six” businesses between 2010 and 2019

The research topic on tax avoidance is a matter of concern for many businesses Because it has a connection in social interaction between geographically adjacent businesses that are incorporated into corporate tax behavior In addition, the impacts

in the region are analyzed to detect the mutual imitation of tax avoidance decisions among businesses, which enriches research into corporate taxation incentives, fills gaps in related areas of research, and provides new ideas for tax authorities to carry out anti-evasion work tax

This is a topic very necessary in real life today By identifying and assessing the impact of a number of factors on the operation of tax avoidance, this study can also provide a number of solutions for businesses on appropriate and effective tax avoidance policymaking

1.8 Research outline

The essay is divided into four chapters:

Chapter 1: Opening These include research questions, reasons for choosing topics, research issues, research objectives, research questions, the scope of research, meaning, and application of research topics

Chapter 2: The theoretical basis of the concepts of tax avoidance, the costs, and benefits of tax avoidance behavior, traditional effective tax rates, tax disparities,

persuasive theories for essays on free cash flow and cash flow management Finally,

an overview of the "Silicon Six" corporate income tax rate over time and the development of research hypotheses

Chapter 3: The situation of tax planning of "Silicon Six" from 2010 to 2019, how

"Silicon Six” avoids taxes, The Global Minimum Corporate Tax and "Silicon Six" reaction to The Global Minimum Corporate Tax

Chapter 4: Conclusions and recommendations

CHAPTER 2: THEORETICAL BASIS

2.1 Conceptions

2.1.1 Conception about tax planning

The examination of a financial position or plan to ensure that all parts work together

to allow you to pay the least amount of taxes feasible is known as tax planning Tax- efficient planning is defined as a strategy that reduces the amount of money you pay

in taxes Individual investors’ financial plans should include tax planning as a key component Success hinges on lowering one's tax obligation and increasing one's capacity to contribute to retirement programs

Because all persons are required to pay taxes, tax preparation is an integral part of their financial success narrative With tax planning, one may simplify his or her tax payments such that he or she receives significant returns over a certain period while assuming minimal risk Effective tax preparation can also help a person reduce their tax obligation

2.1.2 Conception about tax avoidance

Tax avoidance is a set of methods to optimize the amount of tax payable This is an activity that can help businesses make full use of the support capital from the tax payable to the Government, with limitations such as taking advantage of accounting methods Thereby, it can help businesses reduce the amount of debt they have to borrow to serve their operations

Tax avoidance has generally been defined as measures that transfer financial resources from the government to shareholders, thus increasing the company's after-tax worth Tax avoidance, on the other hand, does not necessarily improve the worth of a firm after taxes; in certain situations, it might decrease the value of a corporation 2.1.3 Tax avoidance and tax evasion

Tax evasion: The employment of unlawful measures to conceal income or information from the IRS or other tax authorities is known as tax evasion Fines, penalties, and/or prison terms may be imposed for tax evasion

Tax avoidance: Tax avoidance is a set of methods to optimize the amount of tax payable This is an activity that can help businesses make full use of the support capital from the tax payable to the Government, with limitations such as taking advantage of accounting methods

The difference between tax evasion and tax avoidance

The difference between tax evasion and tax avoidance largely boils down to two elements: lying and hiding

“Tax avoidance is structuring your affairs so that you pay the least amount of tax due

Tax evasion is lying on your income tax form or any other form,” says Beverly Hills, California-based tax attorney Mitch Miller

According to Agnar Sandmo (2004), if tax avoidance is beneficial then it is not the behavior tax but the amount of tax to be paid after or after the financial year itself On

the contrary, if you follow the pole of the manager's behavior, then tax avoidance is tax, the company will bear the heavy consequences of the behavior about the method Different conceptions of tax avoidance and tax evasion are based on legitimacy in taxpayer behavior Tax evasion is an act against the law: when taxpayers try not to report taxable source income, they promote illegal activities subjecting them to the management of the law When avoiding taxes in this form, they are concerned about the possibility that their actions may be discovered presently Tax avoidance, on the contrary, is an activity within the framework of the tax law It is the use of provisions

of tax law to reduce tax liability, by converting labor income into capital income, to be subject to low taxes When doing tax avoidance, taxpayers do not have to worry about the possibility of tax evasion being detected

2.2 Benefits and costs of tax avoidance

The most evident benefit of corporations when they avoid taxes, according to Hanlon and Heitzman (2009), Pasternak and Rico (2008) If you avoid paying taxes, the corporation will save the appropriate amount of money The amount of tax avoided will boost a company's cash flow, allowing it to expand its investment options when resources are available Increasing activity investment will boost a company's worth From the standpoint of shareholders, the value of their assets will improve as a result

of greater dividends received Managers are rewarded in the form of salary for efficient tax avoidance actions

In fact, due to accounting principles, this difference still occurs quite regularly and without serious consequences if the manager still acts in the interests of shareholders However, in the context of tax avoidance behavior This differentiation is encouraged and managers can take advantage of the increase in information asymmetry to benefit themselves and harm the interests of shareholders The company’s internal control system will be impaired and shareholders will be unable to control the internal situation of their own business

2.3 Effective Tax Rate (ETR)

This is the simplest and most common way of identifying and measuring tax avoidance behavior The traditional effective tax rate is calculated as follows:

ETR = Tax payable/Income before tax Most tax avoidance all use this measure (Gupta and Newberry, 1997; Hanlon et alSlemrod, 2009; Wilson, 2009; Chen et al., 2010; Wu et al., 2013) However, due to its simplicity, this measure suffers from some problems, which are highlighted by Dyreng et al (2008), the first is the deferred income tax payable, this tax represents the future tax effects from current transactions These taxes may therefore be a payable or refundable future tax rather than tax payable now

2.4 Research background

Dyreng et al (2010) based on the studies of Desai and Dharmapala (2006), Wilson (2009), During examines the impact of business fundamentals such as advertising costs, expenditures capital, intangibles, leverage, size, fixed assets, general and

administrative expenses, R&D, and performance proxies on tax avoidance This study specifically examines the role of managers in tax avoidance behavior

The impact of managers on corporate performance revolves around the question: how much influence do managers have on different aspects of corporate performance and shareholder value? For example, Hayes and Schaefer (1999) estimated the manager's effect by determining the division of firm and manager and measuring the

extraordinary earnings around that division

Or Bertrand (2003) explores the impact of managers on the firm by establishing a sample of managers who have been through at least two companies and assessing their impact based on the change of these companies Other empirical studies such as Ge et

al (2009) show that managers have an impact on financial accounting revenue through balance sheet activity, accrual freedom

2.5 Background of Corporate Tax Rate of “Silicon Six” throughout periods Amazon, Facebook, Google's parent firm Alphabet, Netflix, Apple, and Microsoft are part of the Silicon Six, a group of US-based internet titans The major corporations in Silicon Valley are among them Facebook, Apple, Amazon, Netflix, Google, and Microsoft are among the world's most valuable corporations, with a combined market capitalization of $4.5 trillion They are worth more than the London Stock Exchange's 1,000 firms In this report, we assess the Six's immense scope and effect, examine their aggregate tax behavior from 2010 to 2019, score them individually on their tax behavior, and conclude with a few potential fixes

Over the years 2010 to 2019, Facebook (10.2%) and Amazon (12.7%) paid the least cash tax as a proportion of declared profit among the Silicon Six, and Microsoft (16.8%) and Apple (17.1%) have the highest percentages However, profit margins stated by companies vary widely Most importantly, Amazon's is a meager 2.8 percent (i.e., they don't have any) With $960.5 billion in revenue, they recorded only $26.8 billion in profit of revenue over the period under consideration) As a consequence, during this time, Amazon has only paid $3.4 billion in taxes During this decade, Apple has paid $93.8 billion and Microsoft has paid $46.9 billion This is especially true given Amazon's revenue over this period Microsoft's duration of time was roughly doubled Over the period 2010 to 2018, the booked current tax charge reported across the Six was just 8.4% of identified foreign profits, or $59.6bn Markedly, the foreign current tax charge (8.4%) is a third of the consolidated current tax charge booked, which is 25.3% Facebook has the lowest foreign current charge ratio over the decade, at 5% of foreign profits

CHAPTER 3: “SILICON SIX” AND THE GLOBAL MINIMUM CORPORATE

TAX 3.1 The situation of tax planning of “Silicon Six” from 2010 - 2019

Our analysis of the long-run effective tax rate of the Silicon Six over the decade to date has found that there is a significant difference between the cash taxes paid and both the expected headline rate of tax and, more significantly, the reported current tax provisions Corporate tax paid is much lower than is commonly understood Over the period 2010 to 2019:

- The gap between the expected headline rates of tax and the cash taxes paid was

Over the course of a decade, the cash tax paid was 12.7 percent of profit Amazon's tax payments have risen slightly in the last three years, and they now boast that they paid $2.6 billion in corporate income tax in that time, omitting to mention that this was on $20.7 billion in profit and over half a trillion in revenue ($546.7 billion), and that they paid just $839 million in the six years before that

Cash tax paid as % of profit is 12.7%

Significantly, they have a net deferred tax burden as of 2017, owing to a rapidly expanding valuation allowance (which now stands at $5 billion)

Amazon's foreign revenue, profit, and tax statements are almost non-existent They have reported $326 billion in sales and $3 billion in losses during the last ten years, but only $2.6 billion in current tax charges

3.1.2 Facebook

This decade, Facebook has paid $7.7 billion in income taxes on profits of $75.5 billion and revenues of $173.1 billion During the period 2010-18, the cash tax paid as a proportion of earnings was only 10.2 percent (the lowest of any of the Silicon Six), despite the fact that the federal headline rate of tax in the United States was 35 percent for seven of the eight years under review For the years 2010 through 2017, it was 7.9% Excess tax savings connected to share-based compensation had a significant influence on Facebook's total tax liability, decreasing it by $1.25 billion and $717 million, respectively, in 2017 and 2018

Cash tax paid as % of profit is 10.2%

In 2018, the pattern of low current tax provision in connection with international profits continued, with only $1.0 billion booked on $16.5 billion in foreign profit, resulting in a booked current tax rate of 6.2 percent Over the last decade, Facebook has had the lowest foreign current tax charge ratio of the Silicon Six, at just 5% of profits

Facebook's tax evasion methods have included the Republic of Ireland, particularly for the significant European revenue that is booked directly in Ireland Facebook said in December 2017 that it would begin booking advertising revenue locally rather than re- routing it through its worldwide headquarters in Dublin However, this has yet to impact as a significant increase in current tax provision, which remained low in 2018

attributable to stock-based compensation charges reduce Google's total tax provision

by $1.6 billion and $1.5 billion in 2017 and 2018, respectively

Cash tax paid as % of profit is 15.8%

Google has a subsidiary in the United Kingdom It was announced in January 2016 that a settlement had been reached with British tax authorities to pay £69 million in past taxes and to pay tax on earnings from UK-based advertising The advertising revenue generated by Google UK (£1.4 billion in 2018) is still a fraction of what industry analysts predict is generated in the UK, which is estimated to be £5.5 billion 3.1.4 Netflix

The Sixth proved to be the most difficult to rank During this decade, they have paid

$520 million in income taxes (on $3.3 billion in profits and $62 billion in revenue) For seven of the eight years under review, the cash tax paid as a proportion of profit

was just 15.8%, despite the fact that the federal headline rate of tax in the United States was 35 percent They run on razor-thin margins (only 5.3 percent), therefore the cash taxes paid as a percentage of revenue are a pitiful 0.8 percent - less than a fifth of what Microsoft, Apple, and Google produce Their reported overseas profit margin of 4.3 percent is considerably lower

Cash tax paid as % of profit is 15.8%

Netflix's tax evasion methods include the Netherlands, particularly for the significant European revenue that is booked there In October 2019, it was reported that Italian prosecutors had begun an inquiry into possible tax evasion, alleging that Netflix should pay taxes in the country because the digital infrastructure it employs to broadcast content to 1.4 million customers qualifies as a "physical presence." 3.1.5 Apple

It bills itself as "the world's largest taxpayer," and it definitely pays the most taxes of the Silicon Six, with $93.8 billion in income taxes paid this decade However, the cash tax paid as a proportion of profit is still a low 17.1 percent, despite the fact that the federal headline rate of tax in the United States was 35 percent for seven of the nine years under consideration Between 2010 and 2017, it increased by 16.6 percent

In 2019, the pattern of low current tax provision on foreign profits continues, with only $3.9 billion booked on $44.3 billion in international profit, resulting in a booked current tax rate of of 8.9%