Will The Biden/Yellen Multinational Tax Proposal Sink Apple, Amazon, Microsoft, Alphabet And Facebook?

Summary

• The Biden Administration is seeking payback for the trillions spent to help the markets during the COVID-19 Pandemic.
• With five stocks making up 24.1% of the S&P 500 Index it could have a serious negative impact on Wall Street and Main Street.
• Only Ireland and The Netherlands are standing in the way of this tax proposal becoming a reality.
• This idea was discussed in more depth with members of my private investing community, Friedrich Global Research. Learn More »

Photo by gesrey/iStock via Getty Images

The current market capitalization of the S&P 500 Index is $33.62 trillion...

Y-Charts

... and one major reason as to why it is that large is because the top five largest stocks in that index (by market capitalization) account for 24.1% of it.

Friedrich Global Research

One of the reasons all five of these companies, as well as another 236 other components of the S&P 500 Index, have done so well over the last decade is because 241 of the 500 listings in the S&P 500 Index (SPY) are multinational. A company can be considered a multinational if 25% of its revenue comes from out-of-home country operations. By not having to repatriate most of the income each earned overseas, multinationals can save enormous amounts in taxes by sheltering it overseas. But when just the five major multinationals make up 24.1% of an index, it makes one quite nervous, because if governments choose to highlight those five companies as a group and go after them in some way, then it could have serious consequences for the markets as a whole.

Unfortunately, such an attack is currently brewing globally as the Pandemic has forced governments around the world to go deeply into debt. In the battle against COVID-19, governments around the globe are on the cusp of becoming more indebted than at any point in modern history, surpassing even World War II. Fiscal authorities have spent vast sums protecting their people and defending their economies from the wrath of the pandemic. At the same time corporations that make up the S&P 500 Index as well as other major global indices have benefited by unprecedented government support for the markets.

Despite the great majority of companies in the S&P 500 Index reporting lower financials then each did in 2019, investors have latched on to a near zero interest rate environment and have piled into the markets and (despite negative growth rates for most companies) have been buying the S&P 500 Index especially, in a sort of manic behavior with zero fear due to governments acting as backstops. The current US Administration seems to believe that since the global governments have helped corporations, by bailing them out and avoiding a deep depression, that it is now only fair for governments around the world to receive a payback in the form of increased tax revenue. I was going to spend the day writing about what may be coming to achieve this payback, but I don't have to as Ben Chapman of the Independent newspaper has already done so for me, and you can read his amazing article by clicking below.

Biden's radical plan to curb tax dodging will have 'seismic' impact on Apple, Google and Amazon

Biden’s radical plan to curb tax dodging will have ‘seismic’ impact on Apple, Google and Amazon A plan from Joe Biden to shake up the global tax system amounts to the "most radical rewrite of international tax rules" for more than a century and will have a "seismic impact" on big technology ... finance.yahoo.com

Click to enlarge

Clearly if President Biden and Treasury Secretary Yellen were to succeed in bringing the minimum global tax rate for corporations to 21%, it will have serious repercussions for the global financial markets, but none more so than the S&P 500 Index and more importantly the top five stocks listed in the table above. Now, getting Ireland and The Netherlands to go along with such a new tax plan may be difficult as each benefits greatly by providing a tax haven status, but if the Biden Administration can get a global pact done, the word "tax haven" will just be a memory going forward, as there will be a massive paradigm shift coming that could rock the global markets as tax rates would skyrocket.

According to our research at Friedrich Global Research we're already seeing the five stocks, mentioned in the table above, to be either overbought or near fully valued.

Apple (AAPL)

Microsoft (MSFT)

Amazon (AMZN)

Alphabet (GOOGL)

Facebook (FB)

For those interested in how to best use the Fundamental Analysis Charts above, you can learn how to do so by going here.

Going forward, We believe the proposed Biden/Yellen Multinational Tax to be the No. 1 threat to the financial markets as well as Main Street, and it should be something that everyone needs to pay close attention to, especially those who use the S&P 500 Index (SPY) as their primary investment vehicle.

Analyst’s Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice

Comments

[Taxes]

It would also be good to distinguish between the impact of a minimum global tax rate for corporations of 21% and an effective minimum global tax rate for corporations. In the Netherlands for example, the tax rate for corporations is 25% already. However, a minimum global tax rate wont solve the problem (if you consider a lower effective tax rate as a problem). As long as the allocation of taxation rights are not harmonized on a global level, the effective minimum global tax rate will, in principle, always be less than the statutory tax rate.

[Chart Rider]

No. Megacaps don’t pay any taxes.

[SeekingTruth]

Definitely a subject worth noting and discussing.
My thanks to the author.

So are large ships with a small and somewhat ineffective rudder better than having no rudder at all?
Corporations have gotten away with every kind of money flim-flamery imaginable as it has been part of our system from day one.

And they pay up mega$$ as their dues for all the privileges, power, and influence that they get and fully exercise - to the wrong people of course.

So what if they were "encouraged ' to pay more of their payoffs to their consumers and fellow citizens (you know, the folks that legitimately make and keep them rich) instead of almost all to their lackeys in Congress, and other myriad associated power brokers, and dubious parasites here and abroad?

I have no sympathy for them in this regard, as they have impoverished too many in the work force already with their move of jobs overseas, the suppression of wages, their incessant lowering of quality/quantity while raising prices, and other devious tax evasive tactics and scams over the decades.

Adjustments always have repercussions, but some of them are necessary for the overall good. Like cleaner water, and air, and less toxins in our food and drink, better schools, infrastructure, etc.

Besides, don't recall any politician asking my opinion about this or any other subject anyway, so whomever is in power is going to do what they want to do if they can force it through.

Rah, Rah, for the Electoral College - Sis -boom - bah! - so why ever change when we've got it so made in the shade?
Opinions will differ - the body of above represents mine.

[JDoe20]

Other countries rarely acquiesce to countries with weak leadership . . . .

[-=Prospero=-]

Seems to me like an attempt at a scare article to get folks to sell. No thanks; these companies will be just fine and I'll keep making money. Nice try.

[Ra$$taman]

It's an American thing. Although even the least educated among us know deep down that a "great" country cannot be maintained without cost, somehow we demand greatness while at the same time refuse to pay for it. This is not unique to either political party but you could make the case that the Republicans are being somewhat less honest about the state of affairs in the sense that they claim all Republican proposals to be great and all Democrat proposals to be unmitigated disasters.

[Christian Louis Boutin]

@Ra$$taman The current border crisis is certainly a disaster.

[albertciampi]

It will ultimately be passed on to consumers everywhere.
Let’s continue to punish innovation and successful businesses who employ millions.

[Joe4888]

@albertciampi Tax cuts don’t automatically go to the consumer. Why would raising taxes automatically come from the consumer?

[albertciampi]

@Joe4888 tax cuts do keep costs down or at least slow the rate . What’s wrong with tax cuts accruing to the shareholders who took the risk by investing in a company? I’m a man of modest means but I admire risk takers, innovation and sheer hard work.

[Chancer]

This no big deal for these companies. Corporations pass on tax increases as price increases on their products and services. This hurts the middle and lower classes as higher consumer prices and a higher cost of living.

[PreCambrian]

I can see the proposal to be a threat to the S&P but I don't see it as a threat to Main Street. Just like the Trump tax cut boosted the S&P a tax hike could lower the S&P. It didn't do much for business growth and CapEx.

[Sixtyish]

A multi-lateral agreement on a corporate minimum tax rate seems unlikely to me. But keep your eye on the Biden Administration proposals to increase the US corporate rate and, perhaps more significantly, convert the GILTI tax from a 10.5% tax on intangible income to a 21% tax on a more comprehensive set of offshore profits.

[No Guilt]

“Pandemic has forced governments around the world to go deeply into debt.”

This is very limited thinking.

[usermichael]

What is the total market cap of whole us stock market?

[Mycroft Friedrich]

@usermichael $49.1 Trillion

[Chart Rider]

@usermichael $5

[VoiceofSanitySometimes]

It will happen that global governments better coordinate tax policy. But not anytime soon. It's not just Ireland and the Netherlands who are in the way. What's to stop Indonesia from saying "flow your money thru here and we'll only charge 5% tax"? Or Vietnam, or the Caymans, or Argentina (they certainly need the money). What is to stop China from saying "list on the the Shanghai exchange and we'll give you massive tax breaks for 20 years"?

Money can get moved around the globe in micro-seconds, and transfer pricing is a creative art, not a science.

Not to mention how cheaply pols can be bought compared to the taxes paid by the world's largest corporations.

[No Guilt]

@VoiceofSanitySometimes

Wack a mole

[Chancer]

@VoiceofSanitySometimes:

I agree. Big benefit to those nations who reject the minimal tax and more smaller nations can become tax havens.

[flumeride]

@VoiceofSanitySometimes The caymans already offer certain tax havens, but the rest of your past is naive. What Ireland has done is to give tax breaks based on the corporation having a presence in Ireland with a certain number of employees. Is a good deal for them. It lowers the unemployment rate, they gain income tax from those employees, etc. It works because they already had the infrastructure in place to support those jobs and they have a qualified workforce. It will take some other countries time to provide those things.

China is not going to offer cheap tax rate to be listed on the Shanghai index. China is not all about lower tax rates unless the government controls the company. The only way to trade on the Shanghai market is to have a Chinese bank account/broker. Now the Honey Kong exchange is a different story because it was established under British law. Even if an American company did the things to be listed on the Shanghai index it would have to pay American taxes unless the company moved its head quarters to China. That is not a likely scenario.

As far referring money in micro-seconds. That means nothing to move large sums of money you will not be able to hide that from the IRS.

All that said I don’t think the burden administration will pull off this tax scam.

[SuperPac]

The Biden-Harris admin is owned by Woke (Large) Capital. It represents their faction occupying the visible seat of Power in Washington.

Big Tech is the Leader of Woke Capital. They are going to reap huge benefits from the Biden-Harris admin. But optically several things will be done to keep up a mirage that the admin is being neutral and fair etc.

So don't get too worried about such articles with hysterical titles. If a correction occurs in Big Tech. buy more. Load up.

These are bad times. You have been locked up, restricted, humiliated, muzzled, your children's education pummeled to the ground. Your cultural heritage spat upon and torn down. Least you can do is make money off the state which printing so much money which fuels this insane rally.

[ddeleo]

@SuperPac you seem to be in direct conflict with your state... we are all in dire straits because of the pandemic, blame the government for printing money to keeps us from going into worst straits, but since we are in dire straits at least the govt should let us reap some rewards.

Our rewards are the economy didnt go into a black hole.

[SuperPac]

@ddeleo

Thanks for your concern. I am enjoying great health, my portfolio is doing much better than I expected thanks to the insane monetarism. I did not panic nor gave into FOMO. And spent my spare time when restricted reading some great books which are all available free on internet, books like Gibbon's 18th century masterpiece ''The History of the Decline and Fall of the Roman Empire''.

[DayIdie]

How is Big tech going to reap benefits from Biden with his corporate tax hike?

[cons123]

SALT will be reversed regardless of the static from the President. CA and NY are the heart of the D's.

[bluescorpion0]

¨Fiscal authorities have spent vast sums protecting their people and defending their economies from the wrath of the pandemic.¨

They did no such thing. It was plain stupidity for very little actual factual medical reason. This leads me to believe it is a planned conspiracy to create these debts to produce more modern day slavery.

[No Guilt]

@scorpion.north

The government will break your legs, hand you crutches and then tell you to be thankful.

[Chancer]

@scorpion.north:

The Great Reset for collectivism, globalism, and one world government says:

1- The pandemic is the entry into the Great Reset.

2- Climate change is the sustainability of the Great Reset.

John Kerry at the WEF said that Biden is ALL IN for the Great Reset.

[Chart Rider]

@scorpion.north Fox News is slavery

[havegone]

The truth that all governments are thieves.

[DayIdie]

Though even libertarians have to tax something.

[The Exception]

No.

[liberty and justice]

Not going to pass as proposed. Politics. Ultimate comprise will be absorbed by growth and operating leverage.

[User 44279746]

"The current US Administration seems to believe that since the global governments have helped corporations, by bailing them out and avoiding a deep depression, that it is now only fair for governments around the world to receive a payback in the form of increased tax revenue."

All corporations were not bailed out. Were the cruise companies bailed out? The airlines received plenty of cash subsidies. The Democrat/liberal playbook is to never let a crisis go to waste.

[MJ Pragmatist]

@msbreb1978 Agreed. I’m surprised the article said the below. This is nonsense. They aren’t spending all this money to help the markets. They are spending it on their friends, crony capitalism, bail out cities, and bribes to voters since they were smarter than McConnell to bribe the voters.

“The Biden Administration is seeking payback for the trillions spent to help the markets during the COVID-19 Pandemic.”

[It is a Top]

@msbreb1978
"The Democrat/liberal playbook is to never let a crisis go to waste."

Are you saying Trump is a Democrat? He was president during the whole mess.

[americanbrunette]

@It is a Top and you, sir, are a complete idiot. Nikki