Microsoft, Cisco Aren’t Paying Their Fair Share in Taxes. Investors Are Fighting Back.
By Robert Stewart, tax and disclosure advocate for Public Citizen
If corporations make more money, they should pay more in taxes, right?
Unfortunately, this is not the case. In fact, many profitable multinational corporations have paid hardly any taxes at all in recent years thanks to tax avoidance practices and corporate handouts. Billion-dollar companies are enjoying record profits by exploiting tax loopholes even as Americans are struggling with rising costs and living paycheck to paycheck.
The accounting gimmicks that allow corporations to avoid taxes are carried out in secret. But investors are fighting back to ensure shareholders can see and understand the sometimes-risky tax practices of the companies they’ve invested in. By filing resolutions calling for transparency, investors are pushing corporations to avoid undue risk.
Tax transparency in the U.S. lags behind other countries, leaving American investors at a big disadvantage. Not only do major companies already report this information privately to the IRS, but multinational corporations in Europe must disclose it anywhere they do business. Corporations should be held to the same standard here.
The U.S. House in 2021 passed the Disclosure of Tax Havens and Offshoring Act, which would require public companies to declare their main activity, annual earnings, revenue, and profits, how much taxes they paid, their number of employees, stated capital, and tangible assets in every country they do business, as well as list all subsidiaries. This crucial information would help investors begin to detect potentially risky behavior like corporate tax avoidance, and the bill has the support of investors with a combined $2.9 trillion in assets.
The U.S. Senate should pass the bill during the lame duck session. But even if it fails to, there are other ways to bring this needed transparency to multinational companies.
Both Microsoft and Cisco have annual general shareholder meetings in December, where tax transparency resolutions have been filed. Investors will get a chance to expose how these companies avoid paying their fair share in taxes. Neither company has faced shareholder resolutions on this matter before.
Cisco shifted $67 billion in profits from overseas to the U.S. in 2018, and it remains unclear what sort of accounting games the company is playing. According to Forbes, Cisco’s 2021 annual report made no mention of whether it had conducted any intra-company transactions, such as transferring intellectual property to the U.S., despite the substantial increase in U.S. profits. The company’s investors have a right to know.
Meanwhile, Microsoft is on the short list of extremely profitable Fortune 100 companies that paid an effective tax rate of less than 10% in 2021, less than half the statutory rate for corporations of 21%. So while it earned close to $34 billion domestically, the company paid only a little over $3 billion in federal income taxes. Compare that to the top tax rate for individuals of 37% and the fact that the average American pays a 13% federal income tax rate — a rate that factors in taxes paid by the lowest earners in the country. It’s clear evidence that corporations and regular people are operating under a different set of rules.
Shady tax avoidance practices like this can pose significant risks to investors. In November 2021, the U.S. Tax Court sided with IRS on claims that Coca-Cola misallocated profits from the U.S. to lower-tax nations like Ireland and Brazil to reduce its tax liability by $3.3 billion. The company now owes as much as $13 billion to the IRS — and it's company shareholders who will ultimately pay the price.
Investors in Microsoft and Cisco now have an opportunity to make sure what happened at Coca-Cola doesn’t happen to them. One way or another, giant multinational corporations must pay their fair share.