WASHINGTON — The U.S. Supreme Court declined to hear a challenge to corporate tax regulations, delivering a victory to the IRS that will cost tech companies billions of dollars.
The court, in a brief written order, said Monday it wouldn’t consider an appeal brought by Altera Corp., now owned by Intel Corp.
The regulations determine how companies split costs with their foreign subsidiaries, which are typically in lower-taxed jurisdictions. The costs at issue here are stock-based compensation, often used in the tech industry. Tax law generally requires that companies determine those internal splits based on what unrelated companies would do in a similar transaction, but the IRS approaches for how to determine that have come under repeated scrutiny.
Companies wanted more of the costs to be allocated to U.S. operations. Doing so would increase their U.S. deductions and reduce their income at the relatively high U.S. tax rates that prevailed until 2018. Having lower costs abroad means higher profits abroad, taxed at lower rates.
Affected companies include Facebook Inc.
An expanded version of this report appears on WSJ.com:
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