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Google's $1.3 Billion Potential Tax Bill: ETFs in Focus

July has not started on a strong note for Google Inc’s parent company, Alphabet Inc GOOGL. It was recently accused by the French government of illegally dodging taxes and routing sales through France instead of Ireland. The basic argument is on whether Google’s European headquarters in Ireland should be taxed as if it also has a permanent base in France.


This comes days after Google was slapped with a record $2.7 billion tax bill by the European Union, as the committee accused the company of unfair practice, as it prioritized Google’s price-comparison-shopping service over competitor’s advertisements.


Coming back to the subject, Paris judges are set to give their ruling as early as July 12, 2017 on whether Goggle was involved in any wrongdoing.


Google has a history of being stuck in litigations involving back taxes. Last year, it agreed to pay 130 million pounds to the U.K. authorities for taxes going back to 2005.


However, per a Bloomberg article, Google is less likely to be charged this hefty amount of back taxes. This is primarily because Google’s European headquarters in Ireland does not have a permanent establishment in France, per an adviser at the Paris administrative court. Therefore, according to the adviser, the company will most likely not be forced to pay the taxes.


Moreover, considering a macro perspective, the tech sector in the U.S. has been rallying lately. This is primarily because investors are optimistic about the sector’s performance ahead of the earnings season (read: Will Top ETF Areas of 1H Carry Momentum in 2H?).


In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Alphabet (read: How to Build a Winning ETF Portfolio for Second-Half 2017).


Technology Select Sector SPDR Fund XLK


XLK is a relatively cheaper bet on the technology sector. This fund has AUM of $16.25 billion and charges a fee of 14 basis points a year. From a sector look, Software, Internet Software and Services and Technology Hardware Storage & Peripherals have the highest exposure to the fund, with 19%, 18.63% and 17.76% allocation, respectively (as of March 31, 2017). It has 5.06% allocation to Alphabet Inc (Class A) (as of March 31, 2017). The fund has returned 28.74% in the last one year and 14.83% year to date (as of July 11, 2017). XLK currently has a Zacks ETF Rank of #2 (Buy) with a Medium risk outlook.


iShares U.S. Technology ETF IYW


This fund provides exposure to the U.S. technology sector. It has AUM of $3.50 billion and charges a fee of 44 basis points a year. From a sector look, Software & Services, Technology Hardware & Equipment and Semiconductors & Semiconductor Equipment have the highest exposure to the fund, with 53.71%, 26.99% and 18.04% allocation, respectively (as of July 10, 2017). It has a 6.42% allocation to Alphabet (Class A) (as of July 10, 2017). The fund has returned 30.74% in the last one year and 18.31% year to date (as of July 11, 2017). IYW currently has a Zacks ETF Rank of #1 (Strong Buy) with a Medium risk outlook.


Vanguard Information Technology ETF VGT


This fund is one of the most popular bets on the technology sector in the U.S. It has AUM of $14.1 billion and charges a fee of 10 basis points a year. From a sector look, Software and Programming, Internet and Mobile Applications and IT consulting and Data Services have the highest exposure to the fund, with 22%, 20% and 17% allocation, respectively. It has a 10.6% allocation to Alphabet Inc (Class A) (as of May 31, 2017). The fund has returned 29.28% in the last one year and 17.93% year to date (as of July 11, 2017). IYW currently has a Zacks ETF Rank of #2 with a Medium risk outlook.


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Alphabet Inc. (GOOGL): Free Stock Analysis Report
 
SPDR-TECH SELS (XLK): ETF Research Reports
 
VIPERS-INFO TEC (VGT): ETF Research Reports
 
ISHARS-US TECH (IYW): ETF Research Reports
 
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