Corporate taxes are an endlessly fascinating niche of financial analysis. Today we have a prime example of that phenomenon, courtesy of a research note shared with us from Morgan Stanley.

The note explores how a recent tax increase meant to cover the costs of corporate tax cuts from 2017 actually lowered tax rates for numerous technology and biotech companies. The note caught our eye because Morgan Stanley used Calcbench data to perform the analysis, and of course we’re shameless self-promoters around here — but also because this truly is a fascinating glimpse into the topsy-turvy world of corporate reporting.

So what happened? As described in the research note, starting this year companies are required to amortize R&D tax deductions over five years (15 years for foreign R&D), instead of those expenses being immediately deductible. Except, that move to raise taxes gives companies more incentive to use something known as the Foreign-Derived Intangible Income(FDII) deduction. That’s a deduction for domestic IP-based goods & services sold to foreign customers, designed as an incentive to keep new tech and intellectual property here in the United States rather than housed in low-tax jurisdictions overseas.

The FDII deduction lets FDII income be taxed at a 13 percent effective rate, rather than the statutory 21 percent rate. So essentially, the push to raise taxes by amortizing R&D is driving companies to use the FDII deduction — and its lower effective rate — more aggressively.

Which firms benefited from this convoluted tax incentive? Morgan Stanley compiled the following chart.

The biggest winners were technology companies; and indeed, almost all companies in the chart above are tech companies or others that run heavy on R&D and intellectual property. The only exceptions are Nike ($NKE) and McDonalds ($MCD).

At specific companies, these pressures lead to disclosures such as this filed by Moderna ($MDNA):

Effective January 1,2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes. Unless modified or repealed, and based on current assumptions, the mandatory capitalization increases our cash tax liabilities, but also increases our FDII deduction resulting in a decrease to our effective tax rate.

You can conduct your own company-specific inquiries using our Interactive Disclosure tool, searching tax disclosures for key words such as “FDII.” Or we have plenty of other ways to research corporate tax data, neatly summarized in our Guide to Analyzing Tax Disclosures.