Dive Brief:
- The current GOP tax bill is slashing corporate taxes and some of the largest tech companies stand to see significant benefits — Google’s 2018 tax savings will be $2.28, Facebook’s $1.56 billion and Amazon’s $723 million, per Cowen senior research analyst John Blackledge as reported by Business Insider. The tax savings will lead to earnings-per-share increases for those companies as well.
- The basis for Blackledge’s estimate is built on three assumptions: the corporate tax rate will drop from 35% to 22% on January 1, 2018, there will be no changes to international taxes and there will be no other impacts from other aspects of the U.S. tax bill.
- Cowen also predicts the three tech giants will spend a combined $234 billion in capital expenditures from 2018 to 2022 because of expensing provisions in the bill, with Facebook having already announced plans to double its reinvestment next year. The bill would allow companies to write off capital expenditure or investments in acquiring, upgrading and maintaining physical assets such as property, industrial buildings or equipment.
Dive Insight:
Tech giants, as well as other players in the digital marketing ecosystem like telecoms, could be in for a windfall from the tax bill and, at the same, have an incentive to reinvest that money into upgrading their infrastructure. The caveat? That incentive could expire after five years, meaning companies may end up looking for quick turnaround projects to invest in.
The bill, if passed, could permit any company to write off capital expenditures but the provision would expire after five years. Currently, companies can only write off such spending over the course of several years.
Another provision could be bad news for companies that carry a lot of debt, like telecoms, per a report in Bloomberg BNA. These companies tend to carry high debt levels and, if the bill passes, would cap the amount of debt interest that is deductible at 30% compared to the 100% now allowed.
Currently, the bill is in reconciliation with the House and Senate hammering out the differences in the versions of the bill each respective legislative body previously passed. Although both groups have a current Republican majority no major legislation has managed to hit President Trump’s desk to be signed into law. The tax bill faces its most opposition in the Senate, where it could be scuttled with only three nay votes from GOP senators.
The GOP tax bill has been noted for its business-friendly changes to current tax policy, but the Cowen analyst report highlights the exact impact on three of the largest global tech companies which will save a combined $4.5 billion in U.S. taxes if the bill ends up passing in its expected form.