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Big Tech Layoffs are Likely Just About Tax Savings
- Big tech companies in the US like Microsoft, IBM, PwC, and others have laid off thousands of employees, with Microsoft alone cutting 6,000 jobs.
- Some companies attribute the layoffs to AI, but analysts suggest tax savings as a major factor.
- Changes to Section 174 of the US Internal Revenue Code in 2017 have impacted companies' ability to deduct R&D expenses immediately.
- Previously, companies could offset taxable income with full R&D expenses, but now these costs must be spread over five or 15 years.
- This change led to an increase in tax bills, prompting companies like Microsoft, Google, and Amazon to lay off staff.
- Labour costs for employees involved in R&D now have to be amortised, affecting taxable income.
- Startups especially face challenges with the new tax rules, resulting in higher tax bills.
- Experts highlight that the tax changes incentivize companies to hire offshore, reduce R&D spending, and opt for layoffs.
- The amendment to Section 174 has made the US less competitive globally in terms of tax incentives for research and development.
- The US House of Representatives passed an act suspending the capitalisation and amortisation requirement for domestic R&D expenses, aiming to address the issue temporarily.
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