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The new minimum corporate tax will hit these companies the hardest, according to expert

University of North Carolina Kenan-Flagler Business School Associate Professor Jeffrey Hoopes joins Yahoo Finance Live to explain why the new 15% minimum corporate tax rate would hit companies like Amazon and Berkshire Hathaway the hardest.

Video transcript

RACHELLE AKUFFO: The Inflation Reduction Act's new 15% minimum corporate tax provision could turn out to be a hefty sum for some of the country's biggest corporations. We're joined by UNC Kenan-Flagler Business School associate professor Jeffrey Hoopes, whose new study actually shed some light on these tax changes in this new legislation. Thank you for joining us this afternoon. So what do we need to know? And why is Berkshire Hathaway and Amazon, why are they at the top of the list as those who will be paying the most now?

JEFFREY HOOPES: Yes, in general, this tax is a tax on financial accounting income. So it's going to target companies who have a lot of financial accounting income, but pay relatively little in tax. So what's important to understand here is that the tax code, we usually tax taxable income for corporations. But there exists another number, which is financial accounting income. And so what this tax is doing is taking that other number, which was really never intended to be taxed, and taxing it, instead of-- or in addition to taxable income. So we're going to see companies, again, pay this tax or very large who have quite a lot of profits to their shareholders, but historically have been paying relatively little in tax.

SEANA SMITH: So, Jeffrey, talk to us just about the number of companies that are expected to pay because of this tax and how much these companies will pay, starting with Apple and what we could see from Berkshire Hathaway-- excuse me, Amazon and Berkshire Hathaway.

JEFFREY HOOPES: Yeah, I mean, to be clear, this-- what we did basically is we took the numbers from 2021, the financial accounting reporting numbers from 2021, and estimated how much in tax these companies would have paid had the law existed in 2021, using public data. So there's a lot of different caveats here. For example, the law is not actually going to exist until 2023. So in 2023, things could be fundamentally different. But what we saw is about 80 companies would be subject to this tax. At the top of the list would be companies like Berkshire Hathaway, Amazon, Ford, AT&T, and eBay, at least had the tax existed in 2021 and based on what we can see from financial accounting income.

So what's kind of fascinating about this, we estimate that a little over $30 billion would have been raised in 2021 had the tax existed. But a majority of that would have been paid by under a dozen companies. So while there's 80 companies that have a positive tax liability, it's really just a very few, very large companies that are going to bear likely the burden of this tax when it is actually comes into play into 2023. So it's a very concentrated tax base here.

RACHELLE AKUFFO: And we know that, obviously, big tech has really been in the crosshairs when it comes to US lawmakers. What do you make of the timing of this?

JEFFREY HOOPES: So I-- this has been kind of coming for a long time. Democrats have wanted to increase taxes on corporations for a while. They've thought of a lot of different options. And I think this is just when they were able to do it. I don't know that it necessarily has to do with the tech being in the crosshairs of anybody.

SEANA SMITH: And Jeffrey, it's also pretty interesting because you also pointed out in this study that it could affect some of the larger shareholders of these companies, namely Warren Buffett when it comes to Berkshire Hathaway, Jeff Bezos when it comes to Amazon. I guess, to what extent could they be on the hook because of this?

JEFFREY HOOPES: Yeah, I think that is a fascinating thing. For example, we talked about when-- we talked about how to tax billionaires more at least. This is something that Democrats have wanted to do for a while. And yet, this tax plan that we had really didn't include any explicit taxes on billionaires. And yet, we saw at the top of this list, for example, is Amazon and Berkshire that are held largely by two very famous billionaires.

So the idea here is that if you own a corporation, it's not actually the corporation that is made worse off by taxes. It's the-- it can be the shareholders. It can be the customers. It can be employees. And so, to some extent, the people who own Berkshire and own Amazon and own all these other corporations will be made worse off. And that does include a number of very famous billionaires.

RACHELLE AKUFFO: And in terms of the sectors that are most exposed, I know we're looking at perhaps manufacturing and some other sectors as well. Are there certain sectors that really stand out to you here?

JEFFREY HOOPES: So I would say tech is kind of overexposed. A lot of this is going to have to do with companies that operate internationally. So it's going to be larger multinational companies that have a lot of operations, especially in lower tax jurisdictions, is going to be one kind of company that's going to be especially affected by this.

SEANA SMITH: Jeffrey, you've done extensive work here just in terms of what companies will be affected, to what extent they will be affected. So how do you see this new corporate minimum tax reshaping how these companies invest in their business?

JEFFREY HOOPES: Yeah, so the plan kind of tried to explicitly not change investment incentives. We will see whether that happens or not. So, for a long time, as the plan is being talked about, it would have actually made it less advantageous to invest by making actually-- taking out some of the investments and as the depreciation adjustments. We're getting a little bit technical here. But they actually did away with that in the end. They make an adjustment for depreciation.

But I think it's kind of a more interesting question, rather than what it will happen to companies' actual investments or how they behave is the other ways in which they might try to avoid this tax. So again, like I mentioned, this is a tax on book income, on financial accounting income, which when companies very well made just decide to report less financial accounting income to their shareholders to try to get out of some of this tax. So we know that companies have the ability to manage their financial accounting income. And it would not surprise me to see this happen to some extent.

RACHELLE AKUFFO: So for companies who are wondering how much this applies to them and whether it applies to them, what do they need to know?

JEFFREY HOOPES: So that's actually a super fascinating question. Preparing this study, I talked with several different tax directors of companies. And I was kind of startled at the extent to some-- that some of them still had questions about how this tax would operate, whether they would be subject to it. There's a lot of pieces of the tax that are still kind of up in the air that we're waiting for the Treasury to provide guidance on through regulations. So what they need to know is they need to figure out whether the subject of the tax, and there's still a lot up in the air. So it's actually difficult for some companies to even know that at this point.

SEANA SMITH: And when do we expect to get some clarity on that? Is there a timeline?

JEFFREY HOOPES: Yeah, so that's actually also a very good question, right? So this comes into play in 2023, and you might think, OK, well, 2023 will end. And a while after that, companies will have to file their tax return. But remember that companies actually have to file estimated quarterly tax payments. So it's actually not very long until companies do have some idea whether they're subject to this tax and for how much.

So the Treasury is kind of quite busy right now, trying to issue these regulations, trying to clarify some things. I mean, it was three days after the tax was passed that we started to see some of the larger accounting firms just begging the Treasury to hurry up and expedite some of this guidance so that they would know on behalf of their clients whether their clients would be subject to these taxes or not.

SEANA SMITH: Professor Jeffrey Hoopes, great to have you. Thanks so much for breaking down your study for us. We really appreciate it.

JEFFREY HOOPES: Thank you.