IRS Demands $600 Million In Back Taxes From Intel

by Mike Godfrey, Tax-News.com, Washington

08 August 2003

In a filing lodged with the Securities and Exchange Commission (SEC), US chip maker Intel has warned that it is facing a possible $600 million bill from the Internal Revenue Service concerning tax credits claimed during 1999 and 2000.

The dispute centres on where Intel's manufacturing operations actually take place. Intel currently produces 'wafers'- from which individual semiconductors are made - at eleven plants based in the United States, and three based overseas. The wafers manufactured in the US are then sent to overseas assembly plants where the chips are cut, mounted and tested.

Whilst Intel claims that the manufacturing is carried out in the US, the IRS believes that as part of the process is undertaken outside of the country, Intel is not entitled to receive tax credits for it. "The bulk of the manufacturing, and most of the value-added, is in our wafer 'fabs'," an Intel spokesman explained to the FT, continuing: "The actual manufacturing of a computer chip is done on the wafer - the rest is services added."

The IRS, against which Intel intends to mount a challenge over the issue, fought a similar, unsuccessful case against the firm in the early 1990's.

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