Tech and digital platforms: how mobile software and a low-tax hub cut the rate to 18.8%

The tech sector's whole tax position rests on one fact: its most valuable assets do not exist in any physical place. Software, algorithms, a brand, the architecture of a platform - none of it sits in a warehouse or a factory you could point to. So a tech group can put legal ownership of those assets into a subsidiary in a low-tax country, then charge every operating company in the world a fee to use them. Profit leaves the high-tax countries dressed as a royalty cheque, and no product crosses a border. That is the signature move. This page is about how tech stacks it with a second layer, and what the largest firms actually pay.

We explain the underlying tools elsewhere: IP and royalties covers how offshore-held intellectual property collects the profit, and the Double Irish covers the famous structure that did it through the 2000s and 2010s. Here we are interested in the combination that is specific to tech, and the rate it produces.

The signature combination: mobile IP plus the platform hub

Tech does not rely on one tool. It stacks two.

The first layer is mobile intellectual property. The group's code and brand are owned by a low-tax entity, and every operating company pays it royalties to use them. This is the engine, and it is the same lever pharma uses. What makes tech distinct is the second layer on top.

The second layer is the platform, or marketplace, hub: booking the actual sales through a single low-tax country, even though the customers and the people are elsewhere. Until May 2019, one of the world's largest online retailers recorded virtually all of its European sales through a subsidiary in Luxembourg, while the warehouses and the customers sat in the UK, Germany, France and Italy. The local operations were treated as low-margin service providers rather than as the businesses actually making the sales. The European Commission investigated a Luxembourg tax ruling granted in 2003 as unlawful state aid and ordered recovery of about EUR 250 million in underpaid tax. The General Court annulled that decision on 12 May 2021, finding the Commission had not proved a selective advantage, and the Court of Justice of the EU confirmed the company's win on 14 December 2023. The company restructured to book sales locally from around May 2019. The mechanism survived roughly a decade of scrutiny before it was unwound, and the courts ultimately found it lawful. That is the point: the platform hub was legal, and it still moved the profit.

Stack the two layers and you get a tech group that pays royalties on its own code, books its sales through a low-tax hub, and reports thin profit almost everywhere it actually trades.

A subtler version: the cost-sharing agreement

There is a quieter variant worth naming, because it shows how the IP gets offshore cheaply in the first place. In a cost-sharing agreement, a US parent and a foreign subsidiary agree to share the cost of research and development, which entitles the subsidiary to exploit the resulting intellectual property in its own territory. The catch is in the price of joining: the payment to buy into an existing research project is typically set at historical cost, not at what the resulting IP will later be worth. So the foreign entity acquires rights to enormously valuable IP for a fraction of its real value. This is the hard-to-value-intangibles problem in its sharpest form. The documented endpoint: in October 2023 the US tax authority served one major software group with a notice for $28.9 billion in back taxes covering the years 2004 to 2013, arguing its cost-sharing arrangement had been used to shift income to a Puerto Rico manufacturing affiliate. The company is appealing.

What the sector actually pays

The clearest sector-wide number comes from the Fair Tax Foundation's analysis of the six largest US technology firms. Over the decade to 2024, those six companies generated about $11 trillion in revenue and $2.5 trillion of profit, and paid a cash tax rate of 18.8%, against a US combined statutory rate of 29.7% and a worldwide average of about 27%. We lead with the cash rate of 18.8% because it is the money actually handed over; a narrower 16.1% figure that excludes a one-off repatriation understates it, so we do not use it.

A sharper, single-year cut: in 2025, four of those giants reported $315 billion in US profits and paid a combined US federal corporate income tax rate of just 4.9%, a saving of about $51 billion against the 21% statutory rate. One of the four paid nothing at all.

And the single best-documented case is a US technology group whose products are sold primarily to US and global consumers. By booking the bulk of its global income through an Irish subsidiary, it for years paid more tax outside the United States than inside it. In September 2024 the Court of Justice of the EU ruled that Ireland had granted that group about EUR 13 billion in unlawful state aid and ordered the back tax paid.

Why a software start-up cannot copy it

The cost of entry. To run the signature move you need a low-tax entity owning the IP, operating companies in several countries paying royalties to it, a platform hub to route sales through, and a tax team to defend the prices in audits that run for a decade. A small software firm has none of that. It can, in principle, claim a domestic patent box rate if it genuinely patents something, and the rules now favour a firm that does its own research. But the cross-border royalty routing and the low-tax sales hub that did the real work were always tools of scale.