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> Because there is no point in being frugal if you have to pay significant corporate tax. And it helped expand "the empire" he was building, because he could re
by kartan 9y ago
> Because there is no point in being frugal if you have to pay significant corporate tax. And it helped expand "the empire" he was building, because he could reinvest everything.
Only profits are taxed, not sales. So if you "reinvest everything" you are not going to pay taxes.
You can hire more people, buy other companies, rent more equipment, etc. The net result is that the company grows but has no profits. It doesn't work if it buys real-estate, for example, as that increases the company value and the owner then needs to pay for the increase of the value of the company. But then it's on the share value increase, and not in profits.
High taxes can incentive grow as spending money to grow it's less costly than to capitalize profits. That's why lowering taxes is seen as an opportunity to withdraw money and reduce investment.
- charlesdm 9y agoSure, but you might not want to reinvest everything today, or within the same tax year, or perhaps you can't tax depreciate an entire property in the same year, etc. Acquisitions of stock (i.e. when acquiring competitors) can't also generally be offset against corporate tax. There will always be some 'leakage' and taxes to be paid. Non-profits are generally exempt from all corporate taxes. If you don't care about putting profits in your pocket, they tend to be very tax efficient. In the case of Ikea, a royalty on all sales (for use of the brand name) is paid to a low taxed for-profit entity. That's how he made his money. The larger the empire, the more royalties he gets, so the structure does make some sense. Not as perfect as running a pure for-profit entity, but probably one of the most tax efficient.