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Netflix Made Record Profits in 2020, Paid a Tax Rate of Less Than 1 Percent

323 points by lurtbancaster 6y ago

HotAirBalloons 6y ago
Unfortunate as it may be, this isn't shocking to me any more. Where are efforts being made to counteract the clustercuss of a situation where the larger you are, the more you can pay your accounting team to diminish your tax burden?
- dripiv 6y ago
  Nowhere, when the people in power benefit from it.
- tlholaday 6y ago
  > ... the more you can pay your accounting team ... I would wager the typical Hacker News reader would be able to explain accelerated depreciation after sixty seconds of reading the instructions for Schedule C. It's not arcane.
  - lotsofpulp 6y ago
    I might accept that wager based on the other comments here.
engineer_22 6y ago
-> President Biden so far has not proposed to do away with these tax breaks, but he has proposed a second-best solution—requiring corporations to pay a minimum tax equal to 15 percent of profits they report to shareholders and to the public if this is less than what they pay under regular corporate tax rules. This would be a big improvement because it would finally require all corporations to contribute at least something to support the society that makes their profits possible. Uhh.... Typo?
- 3np 6y ago
  how so?
  - Rebelgecko 6y ago
    The word "less" doesn't seem right in this context... Did they mean more?
    - engineer_22 6y ago
      That's right.
deleted 6y ago
[deleted]
visarga 6y ago
such accounting, such talent, they only hire the be$t why can't we be 1%'ers like them?
tehwebguy 6y ago
After a decade or two of these stories it’s clear this won’t change until someone offers a retail solution for everyday small businesses and individuals to enjoy the same level of “tAx PlAnNiNg.” It’s the only thing that will motivate the rest of the legislature to plug the holes.
- deleted 6y ago
  [deleted]
- dfgdghdf 6y ago
  I don't approve of tax loopholes that large corporates abuse to pay an effective lower rate. However, as an individual we can't change this. My (extremely cynical) advice is to hitch your wagon to theirs. Get some market exposure to these large companies and make their lobbying efforts work for you. It won't make society any more just, but at least you won't get left behind.
  - CraigJPerry 6y ago
    If they don’t pay dividends (which they don’t) then what does “Get some market exposure” mean?
    - dfgdghdf 6y ago
      Build a portfolio whose value is in some way connected to their share price. Buy shares, hold them, sell later would be one example.
- martinald 6y ago
  At least in the UK all the deductions the article lists are open to all sized businesses and are regularly used by small companies, I would assume the same in the US as they are very basic deductions.
- sumedh 6y ago
  > won’t change until someone offers a retail solution for everyday small businesses and individuals to enjoy the same level of “tAx PlAnNiNg.” Couple of years back when I heard about tax havens, I had an idea why not create a service for individuals/small business people who can use it to open offshore bank accounts and use the same loopholes to save/ minimize taxes legally. Ofcourse I did not have the motivation to do all the research needed for this service but I still wonder if there is such a service for the little guy.
listenallyall 6y ago
People love to vote for politicians who promise massive, but vague, tax credits for green energy, for worker education programs, for locating in "opportunity zones," for making capital investments, all kinds of stuff ... and then they love to be outraged when companies actually do those things and eliminate the majority of their tax bill.
- chickenmonkey 6y ago
  Is your concern about the vagueness of the proposed plans or the outrage at tax bills?
  - listenallyall 6y ago
    My concern is that Americans consistently support and vote for bills and tax laws that ultimately work against most regular people (of which I am a member), because politicians use words like "green energy" and "get Americans back to work", etc. Sometimes politicians even pay $1400 per person so people won't question the rest of the bill. What are you concerned about?
brian_herman 6y ago
https://web.archive.org/web/20210405104053/https://itep.org/pandemic-profits-netflix-made-record-profits-in-2020-paid-a-tax-rate-of-less-than-1-percent/ https://web.archive.org/web/20210405104053/https://itep.org/...
Erlich_Bachman 6y ago
Is that calculation really correct? Does it count tax for all the employees? Does it count all specialized tax for things like gas or VAT, for all the things Netflix buys in their operation? What about all the media that Netflix buys and produces? What about all the taxes levied there on salaries and other activities? The article also talks about "income" and not "revenue"...
- iamgopal 6y ago
  They are selective in only direct taxes.
- jan_Inkepa 6y ago
  Does anyone know the appropriate metric here to use/term to look up? I too wish that was taken into account.
- Zanni 6y ago
  The numbers don't make sense to me. Their annual report [0] says pre-tax income of $2 billion, not $2.8 billion (p41). Even if you disallow deducting interest expense and use operating income, that's still only $2.6 billion. Meanwhile, they're paying $400 million in taxes (p43). That looks a lot more like 20% to me than 1%. What am I missing? [0] https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_NFLX_2019.pdf https://www.annualreports.com/HostedData/AnnualReports/PDF/N...
- varispeed 6y ago
  > Does it count tax for all the employees? Why do you think it is okay for a corporation to appropriate the tax employees pay as theirs? Employee pays this tax, not the corporation.
  - matwood 6y ago
    They are probably referring to the fact that 1/2 the payroll tax is paid by the employer. The employee does not pay this tax, and it is directly paid by the employer for every employee.
  - 6y ago
tlholaday 6y ago
> Among the mechanisms Netflix is using to achieve its next-to-nothing tax liability are accelerated depreciation (which appears to have cut the company’s tax expense by $148 million); deductions for stock options for Netflix executives and other employees ($339 million); and research and development tax credits ($113 million). These are straightforward deductions.
- foobarian 6y ago
  > and research and development tax credits ($113 million). This is why you fill out your timesheets people!
  - TheJoeMan 6y ago
    It seems wild to me that this R&D credit is probably targeted towards new technology that will improve the world, and not Netflix working out how to reduce video lag by an additional 0.2%
    - reducesuffering 6y ago
      Have you ever heard of Chaos Monkey? https://netflix.github.io/ https://netflix.github.io/
- lotsofpulp 6y ago
  It’s almost predictable which “hot takes” will get clicks/attention.
  - carmen_sandiego 6y ago
    I don't think it's almost predictable, I think it is predictable and that's why editors do it.
- christophilus 6y ago
  They are. I’d be pretty upset if I wasn’t able to deduct such expenses from my taxes.
varispeed 6y ago
This is crazy how economy is tilted in favour of these big corporations. If you are a worker, it is not uncommon to pay over 40% of tax and if you work on your own small business you can pay even more and have very little left to reinvest. Then you have progressive tax that is preventing you from saving much - if you want to save for a deposit to buy a house, spend time on education and getting a better job, you'll get hit by much higher tax and it will take ages to save anything. Such taxes are often sold to the public as taxes on the rich, but rich people can easily afford ways around it. I'll vote for any party that will reshuffle the tax system, so that big corporations will have to pay tax just as any other business and tax progression will be removed, so that people will have a chance of levelling up. They should also add a tax on spending money with offshore cards, dividends and so on so that the rich will pay what they are supposed to pay.
- tenaciousDaniel 6y ago
  Yep. I just got an equity payout from an acquisition. It’s a lot of money, though it isn’t going to allow me to retire early. Would be enough for a house down payment, which is good enough for me! However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.
  - lotsofpulp 6y ago
    How was it paid out that your federal income tax liability is 40% Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.
    - sokoloff 6y ago
      They didn’t claim their federal tax liability was 40%; they claimed they were paying 40% total tax rate on the acquisition-related income, something which is true for most employees in most states for many acquisitions.
crispyambulance 6y ago
It would be perfectly fine for corporations to pay comically low taxes--- IF they also had NO ability to fund large-scale lobbying operations and were not allowed to put unlimited amounts of money into political campaigns. That's NOT ever going to happen. But now is the best time for the tax part to change. The economy has been floated by unprecedented government pay-outs, narrowly avoiding a deep depression that would have crushed even the most cash-flush corporations. If certain people have their way, the working class will foot the bill for this for decades to come. Maybe it's time for those who thrived through this to pay their share just like in the post-WWII era where max tax rates reached 80+% up until the early 60's?
- tlholaday 6y ago
  > ... unprecedented government pay-outs ... The G.I. Bill after World War 2 is a precedent. Do you think CARES is larger, or smaller?
  - _huayra_ 6y ago
    It's larger, but less effective. The G.I. bill gave resources to veterans to advance their lives while the 'rona-based payouts disproportionately affected the already-wealthy individuals and businesses due to the military-industrial-congressional complex. It's not so much whether it's larger or smaller, but how well it was spent. Free college and the myriad other benefits in the G.I. bill helped build the US into a superpower (well combined with other fortuitous things, like being the only major industrial power that hadn't been bombed to smithereens). The bailout of large industries that a lot of the CARES act went to were not well spent: it was cronyism to prop up underprepared corporate structures (i.e. those that have hollowed out any "emergency fund" due to it being an overhead to their bottom line) and prevent bankruptcy from enabling other folks to come in and perhaps run things better.
    - matwood 6y ago
      > prevent bankruptcy from enabling other folks to come in and perhaps run things better. Yeah, while I think the CARES act helped individuals, there's no need to try and save every business. Take restaurants for example. In good times, most restaurants fail, and new ones start. The narrative that if restaurants failed they would never come back was simply untrue.
albaniac 6y ago
However, it should also be noted that in order to achieve such a profit, a lot must be invested.
LatteLazy 6y ago
Netflix paid no dividend right? And Netflix has not (so far) run a share buy back. So they're either sitting on the excess cash, or they've spent it making more programs. In either case this is exactly what the current tax code is designed to incentivise. Businesses should invest. That's the whole point of taxing profits not net income...
- Fern_Blossom 6y ago
  If they're using their profits for purchases or hiring folks for new shows, the "tax" comes out of the sales tax and the income tax. I mean, this isn't as mustache twirling as people are making it out to be. The tax code is not that messed up. It has problems yes, but being pissed at a company that's reinvesting their income and not showing a profit is like complaining that the guy/gal that's been running for years won a race. It's not like the tax code is reserved only for a select few. It applies to all Americans. Play the game.
williesleg 6y ago
How much did the Netflix workers make and how much taxes did they pay?
alvah 6y ago
Company generates revenue, offsets costs against that revenue, pays tax on the balance. Yawn.
- sumedh 6y ago
  > offsets costs against that revenue, pays tax on the balance. Yawn. How does it offset them, does it use some shenanigans like other companies?
refurb 6y ago
Carry loss forward....again? No! Exciting it something different. Looks like depreciation (those bastards!) and R&D tax credits. How devious! Maybe reporters should get an accounting primer before writing articles about taxes?
- carmen_sandiego 6y ago
  It's not even just about taxes. Economists largely agree generally low corporation tax is good for everyone. > Maybe reporters should get an accounting primer before writing articles about taxes? That will just make them feel bad when they choose the clickbait anyway. HN is a semi-rarefied atmosphere and even these comments are mostly ignorant rabble. No way the journalists are giving up the sensational headlines for a general audience. Engagement gold dust.
  - someguydave 6y ago
    agreed, if you think this article points to a real scandal you are an ignorant rube - netflix’s low tax bill is justified by reasonable tax spending
- varispeed 6y ago
  Why can't employee distribute their income through past years when they had worse times like corporations can, to lower their tax? Why can't employee use pre-tax income to pay for IP? Why can't employee get R&D tax credits? and so on...
villgax 6y ago
Can people band together & save money doing the exact same thing?
- 6nf 6y ago
  You could incorporate
  - villgax 6y ago
    But like still be on payroll & ask your OG company to pay this new company instead of you directly, has anyone done that or am I just re-inventing contract work?
- tomcam 6y ago
  They could, by investing in a business. Like Netflix they would reap the rewards of the tax code, which means they would be taking on the same risks. A less risky version of this is stock ownership, or buying an index. Because it’s less risky, potential rewards are lower.
- TuringNYC 6y ago
  Ask any of a thousand startups gone dark -- tons of people try. Many fail. You lose your time and your personal investment. Ask me how I know (hint: 3yr full time co-founder) If you make it somehow, you have the benefit of deducting your R&D against profits, which seems fair to me...Except then people get upset (see comments on this page) that you "aren't paying your fair share of taxes." This seems ludicrous given how many years startups spend burning their own money to hope to reach the point Netflix has reached. Good for Netflix.
miltonlaxer 6y ago
Yeah next they're gonna say Netflix should be government run. Keep pressing the naritive till it hurts netflix's bottom line and they bend over. I hate the corporations vs people, rich vs poor, etc. This is nonsense.
hermitcrab 6y ago
It is well past time for progressive taxation on corporations and the super rich and to really go after tax evasion. Unfortunately, politicians in the UK, US and elsewhere don't have the polticial will as they are in the pockets of the powerful people who benefits from the current rigged system. In the UK, for example, the newspaper are almost entirely owned by right wing billionaires.
rataata_jr 6y ago
Less money to the govt. the better. I think they have good auditors.
fareesh 6y ago
How much did their employees pay? Including all the actors who worked on the shows they funded.
benjaminwootton 6y ago
In theory they will be paying corporate taxes on profits abroad. I assume they are dodging those taxes as well, but to take net global income and measure that against federal income tax in the US is a flawed calculation unless you are asking for double taxation. Amazing scale though. It shows the power of cutting out middlemen when they are going direct to consumer without gatekeepers such as cable companies.
hnmullany 6y ago
Netflix recorded a worldwide income tax accounting expense of about 13.7% last year ($438M on $3.2B of Net Income). It also paid cash taxes of $292M (cash taxes differ from accounting taxes because of timing issues - just like revenue is not the same as cash-in). A lot of growing companies have US taxes that are quite low because they lose money for a long time while they're investing in growth. When they finally become profitable, they're allowed to roll forward those losses (within limits) to offset their profits. That's where a lot of these "Zero taxes paid" headlines come from. On the other hand there is a legitimate gripe about using IP offshoring to shift profits to low-tax countries and out of the US, using accelerated depreciation to decrease current year profits, allowing tax deductibility of interest and lots and lots of tax deferrals and deductions for property transactions.
- throwaway667555 6y ago
  Adding one thing: in the past, mega-companies spent money on tangible assets which were depreciated over time as they produced income. Now mega-companies spend money on intangible assets but they can expense immediately, so tax is deferred and they can grow without that tax friction. Dollars spent are the same, but expensing is accelerated, shrinking tax and unleashing growth, and the cycle continues. It’s kind of a cheat, or at least an unintended omission from old laws designed before intangible assets became the biggest assets on the planet.
  - sokoloff 6y ago
    Those changes are often political incentives to sellers of the capital equipment. If you want to stimulate the sales of earth moving equipment or business jets, allow buyers to write it off faster. (Frankly, I’d rather encourage the sale of durable productive equipment than other types of tax incentives which stimulate less future productive activity.)
  - gamblor956 6y ago
    Now mega-companies spend money on intangible assets but they can expense immediately, so tax is deferred and they can grow without that tax friction. Acquired intangible assets must be amortized (aka depreciation for things that don't physically exist) over 15 years, not immediately (some intangibles can be amortized over a 3-5 year time frame). And self-developed intangible assets cannot be amortized at all.
Proven 6y ago
Less than 1% is too much. What valuable service do governments provide to Netflix? If Netflix could choose to do business with governments, they'd likely buy nothing from them. And remember that all Netflix customers and employees already pay too much tax related to Netflix business.
LightG 6y ago
Does anybody in the "know" understand if this is just prior year losses being set against current year profits. Or is this something else? It makes all the difference. Thanks
chaoxu 6y ago
I actually don't get why corporation should pay taxes. When the profit of the company is distributed, or paying the employees, the employees/shareholders will be taxed on that money.
- Black101 6y ago
  So it would be fine if only corporations would pay taxes? Get rid of all income tax, sales tax, etc...
  - deleted 6y ago
    [deleted]
- cjpearson 6y ago
  Corporate taxes allow governments some level over control over corporate policy by incentivizing certain behaviors through deductions/credits etc. Also, dropping the corporate tax rate to 0 would probably be politically impossible, even an identical amount was then taxed on the individuals who benefit.
  - hntrader 6y ago
    On the other hand, corporate taxes advantage large multi-national corporations over smaller companies because they have the resources and capability to manoeuvre around the rules and pay a lower relative tax rate. A government should be able to achieve control through Pigovian taxation, regulations and fines. I'm not convinced that a blanket corporate tax (which does indeed facilitate targeted tax breaks) is necessary beyond the other tools that already exist.
  - TheCoelacanth 6y ago
    Corporate taxes should be structured more like usage fees instead of being a tax on profits. Want to emit carbon? It costs $X/ton. You shouldn't get away with doing bad stuff for free just because you did it unprofitably.
  - gruez 6y ago
pinky1417 6y ago
One aspect I haven’t seen mentioned in the comments or in the article: double taxation. One of the drawbacks of structuring a business as a c-corp is that you have double taxation: once, at the corporate rate then again at the individual income tax rate if the corporation distributed earnings to shareholders. An advantage of that, however, is that if you’re investing for the future, double taxation can be more efficient. If my business makes $100 before taxes, I can reinvest about $80 for future growth if it’s a c-Corp but if it’s a pass-through entity (like an LLC or S-Corp designated as a pass-through), I may only be able to invest $60 because I pay ordinary income rates on earnings. Put another way: in the steady-state, corporate shareholders end up paying big taxes because distributions are taxed once again at ordinary income rates.
- episteme 6y ago
  This is always brought up but it isn't double taxation, the individual is paying income tax and that has nothing to do with the corporation tax.
  - Erlich_Bachman 6y ago
    The government takes tax from the same amount of money twice. How is that not well described by the term "double taxation"?
    - frankydp 6y ago
      The government also collect payroll tax on the employee income from the employer. So it double-taxation+
    - drdec 6y ago
      Money is not taxed [1], transactions are taxed. [1] At least, not yet. Elizabeth Warren would like it to be. Edited for formatting
    - TheCoelacanth 6y ago
      The entire concept of "double taxation" is BS. All money is taxed multiple times as it moves around. If I get paid a wage, my employer pays payroll tax, then I pay income tax. Then when I buy something with it, I pay sales tax. Then the company I bought it from pays payroll tax on it when they pay it out to an employee, then the employee pays income tax on it. Then they pay sales tax when they buy something with it, and so on.
exabrial 6y ago
I don't really have an issue with this. 1% tax is more than sufficient to run this country. The first step to a balanced budget is to stop impulse spending on dumb stuff. My only gripe is I'm not allowed to pay a 1% tax, as I should be.
- matwood 6y ago
  > The first step to a balanced budget is to stop impulse spending on dumb stuff. The problem is that 'dumb stuff' is different for everyone when it comes to country level expenditures.
  - christophilus 6y ago
    This is a decent point in favor of generally decentralized government. More local decisions, fewer federal decisions.
  - exabrial 6y ago
    We can generally agree, paying $5 for a desk is dumb. Sorry, typo, that's $5k, not $5. https://www.forbes.com/sites/adamandrzejewski/2015/10/01/epa-supersizes-furniture-cost-while-downsizing-2000-employees https://www.forbes.com/sites/adamandrzejewski/2015/10/01/epa...
    - matwood 6y ago
      The EPA had an annual budget in 2015 of $8B. So let's say they overpaid 2x for the furniture, and we fix that. Now we've saved ~.6% of their overall budget. Nowhere near enough to run the country on 1% taxes. Articles like that are the definition of outrage inducing bike shedding.
mmd45 6y ago
most of the replies here are yawning at offseting profit with expenses. my reading seems to indicate that ISOs can be used to effectively convert corp tax/ordinary income to capital gains. is this correct?
- sreeramb93 6y ago
  Yes, ISOs are for employees and very good ones. US subsidiaries in India do not offer ISO stock and ask us to pay 30% per requisite tax on unfair market valuations
rev_d 6y ago
What's also quite gross about this is that we have large multinationals paying zero in taxes to the US government, but there are small businesses owned by overseas US citizens that are being subjected to both resident country & US tax due to the US being "unique" in its practice of taxing overseas citizens. If you're small, you get hit by the tax. If you're big enough for creative structuring, you're fine. It's just as disgusting when you get down to individual tax. Larger companies are for the most part taxed territorially (where they make the money) while individuals are fully (and often in ways that are incompatible with local market practice) liable for US taxes, even if they live outside the US.
- pc86 6y ago
  It's only "quite gross" if you have a... gross misunderstanding of how taxes work. They're not paying zero taxes on profit, they haven't profited yet except on arbitrary time scales. Here's a... gross oversimplification: Year 1: Lose $50 million. Total profit: -$50 million. $0 taxes paid. Year 2: Lose $10 million. Total profit: -$60 million. $0 taxes paid. Year 3: Make $35 million. Total profit: -$25 million. $0 taxes paid. People who are either uninformed or petulant ideologues scream about you not paying taxes on $35 million in profit.
  - rev_d 6y ago
    The big thing with the multinationals is that they're able to pull stunts like corporate inversions & royalty payments to their foreign entity to reduce their profit under the (more heavily taxed) US entity. Then you have measures intended to rein them in like GILTI & Transition Tax, which end up mostly affecting smaller businesses.
deleted 6y ago
[deleted]
cwhiz 6y ago
Corporate taxes are such a waste of time. Corporations aren’t ever going to pay them so we just end up with all the downsides. Missing out on local investments, IP offshoring, and the capital gains tax rates. So what we have is a class of people paying significantly lower tax rates than they should be, corporations not paying anything at all, and investment money shifting out of the US. But at least we can claim to have a progressive tax system, or whatever it is that idealists want to call it.
mmcconnell1618 6y ago
Scott Galloway made an interesting point in this Land of the Giants podcast about Amazon. He points out that Amazon convinced Wall Street it doesn't need to show profits and can reinvest more capital into growth than their competitors. Walmart and Target are expected to show profits to their investors on a quarterly basis while Amazon (and Netflix in this case) get to invest more cash that isn't taxed yet. This gives them a competitive advantage unless Walmart can convince investors that it will stop showing profits in order to reinvest in some growth opportunity. https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGhvbmUuZm0vbGFuZG9mdGhlZ2lhbnRz/episode/YmZkZGQ1OTgtYTRjMy0xMWU5LTkwYTAtZWIyY2RhZTE5M2Nj?sa=X&ved=0CAUQkfYCahcKEwiA3suKlefvAhUAAAAAHQAAAAAQAQ https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGh...
- bradleyjg 6y ago
  If GAAP earnings were the same as taxable earnings at least a company would have to go convince Wall Street. As it stands a company can tell Wall Street its wildly profitable and the IRS it makes nothing.
eric_b 6y ago
We have progressive taxation for individuals - why not for corporations? I don't have an army of accountants to avoid the corporate tax rate for my small business. So as a percentage I pay vastly more taxes than the multinationals. Why can't we have varying rates depending on the size of the business?* Bigger businesses have a bigger tax rate. This would also incentivize organizations to stay small. *Calculating the size of a business is tricky. Is it revenue based? Number of employees? Does it change per sector? Anyways, I'm sure it's possible to find a decent set of metrics.
- dragonwriter 6y ago
  > We have progressive taxation for individuals - why not for corporations? Because corporations are, by nature, arbitrarily divisible, so progressive taxation for corporations just encourages division of corporations into units that pay the minimum tax rate. There are business forms that allow businesses (often, but not exclusively, small businesses) to avoid corporate taxes entirely (S corps and passthrough LLCs), whule also providing the benefits of incorporation compared to sole prop and partnership forms.
  - eric_b 6y ago
    This isn't true practically though. Most multinationals consist of dozens of sub-entities but the books all still roll up to the parent. If Google wanted to "get smaller" they would literally have to break apart, which is the same thing that the anti-trust folks want them to do. This seems to solve it neatly in my mind.
lebuffon 6y ago
"I been rich an' I been poor and rich is better" Ella Fitzgerald
02020202 6y ago
nothing illegal, just a bunch of commies crying in envy. wah.
browningstreet 6y ago
Might be time for a gross revenue tax for companies pulling in more than $B
- clairity 6y ago
  yes, and instead, it should be a smooth function on size to avoid discontinuities (like the $1B threshold) that encourage exploitation.
- thehappypm 6y ago
  Corps would find a way around it. They always do. Maybe Netflix could spin off one of its studios into a $999M business, of which Netflix conveniently owns a 51% stake in.
  - browningstreet 6y ago
    > Netflix annual revenue for 2020 was $24.996B, a 24.01% increase from 2019. Would they go to the trouble of making themselves 25 different companies? There might be a way for lawmakers to figure this out... -- https://www.macrotrends.net/stocks/charts/NFLX/netflix/revenue https://www.macrotrends.net/stocks/charts/NFLX/netflix/reven...
    - thehappypm 6y ago
      Even splitting off 1 company, and shielding that $999M in revenue from the higher tax burden, would make sense for Netflix.
      - browningstreet 6y ago
        Versus paying $0 on the whole. Fine, I'll take it.
valuearb 6y ago
According to the article most of their write-offs were from the exercise of ISOs, which is treated differently in tax caclulations than in GAAP accounting. So the company reports a different profit to it's public shareholders than it does to the IRS. When Sarah the employee gets options to buy 1,000 shares of company stock at $10, and the stock is trading at $10, those options have value. GAAP has the value estimated based on standard options pricing models (Black Scholes presumably), ie. the volatility of the stock implies how often the options will vest with value. So the company takes a GAAP expense for Sarah's options grant, lets guess $2 per option which would reduce reported profits by $2,000 total that year. But the IRS doesn't allow this expense for tax calculations. For taxes the company has to wait until the employee exercises the option, then it is required to deduct the difference between what the current stock price is and what the employee paid. So a years later when the stock is at $100, Sarah exercises her options for a windfall of $100,000 in stock that only costs her $10,000, the company gets a tax deduction of $90,000. The site (in a linked essay) points out how much larger these tax deductions are than the actual GAAP expense and tries to spin this as some sort of tax dodge (even though companies are required by law to follow tax accounting and GAAP rules). But here is the problem with their perspective. What if the stock price went down? If Sarah does not ever exercise her options, the company never gets any tax expense for them, even though the OPTIONS CLEARLY WERE A COST TO THE COMPANY. The author is making the old have your cake and eat it too argument. In reality only if the company is successful is the tax code treatment of options beneficial, when it's not successful the treatment is unfair. Note: If you don't think out of the money stock options are valuable, go to your broker and demand some September Tesla $1,000 call options for free because they "aren't worth anything yet" and see how far that gets you.
naveen99 6y ago
Clickbait, how is this 1% tax rate defined ? Clearly not from taxable income. From revenue ?
novaleaf 6y ago
Serious question: Anyone know of or building a "Tax Avoidance Service"? Maybe the only way to get these loopholes shut down is if its made available to everyone.
passivate 6y ago
If the US government were politically pressured to shrink their military budget, that would make more money available for Medicare/Education/SSA/Infrastructure, etc. That would be way more beneficial than taxing Netflix more.
JaceLightning 6y ago
Title is wrong and dumb. Netflix made record INCOME, not profits. You pay tax on profits. Not income.

323 points by lurtbancaster 6y ago

Unfortunate as it may be, this isn't shocking to me any more. Where are efforts being made to counteract the clustercuss of a situation where the larger you are, the more you can pay your accounting team to diminish your tax burden?

dripiv 6y ago
Nowhere, when the people in power benefit from it.
tlholaday 6y ago
> ... the more you can pay your accounting team ... I would wager the typical Hacker News reader would be able to explain accelerated depreciation after sixty seconds of reading the instructions for Schedule C. It's not arcane.
- lotsofpulp 6y ago
  I might accept that wager based on the other comments here.

engineer_22 6y ago

-> President Biden so far has not proposed to do away with these tax breaks, but he has proposed a second-best solution—requiring corporations to pay a minimum tax equal to 15 percent of profits they report to shareholders and to the public if this is less than what they pay under regular corporate tax rules. This would be a big improvement because it would finally require all corporations to contribute at least something to support the society that makes their profits possible. Uhh.... Typo?

3np 6y ago
how so?
- Rebelgecko 6y ago
  The word "less" doesn't seem right in this context... Did they mean more?
  - engineer_22 6y ago
    That's right.

deleted 6y ago

[deleted]

visarga 6y ago

such accounting, such talent, they only hire the be$t why can't we be 1%'ers like them?

tehwebguy 6y ago

After a decade or two of these stories it’s clear this won’t change until someone offers a retail solution for everyday small businesses and individuals to enjoy the same level of “tAx PlAnNiNg.” It’s the only thing that will motivate the rest of the legislature to plug the holes.

deleted 6y ago
[deleted]
dfgdghdf 6y ago
I don't approve of tax loopholes that large corporates abuse to pay an effective lower rate. However, as an individual we can't change this. My (extremely cynical) advice is to hitch your wagon to theirs. Get some market exposure to these large companies and make their lobbying efforts work for you. It won't make society any more just, but at least you won't get left behind.
- CraigJPerry 6y ago
  If they don’t pay dividends (which they don’t) then what does “Get some market exposure” mean?
  - dfgdghdf 6y ago
    Build a portfolio whose value is in some way connected to their share price. Buy shares, hold them, sell later would be one example.
martinald 6y ago
At least in the UK all the deductions the article lists are open to all sized businesses and are regularly used by small companies, I would assume the same in the US as they are very basic deductions.
sumedh 6y ago
> won’t change until someone offers a retail solution for everyday small businesses and individuals to enjoy the same level of “tAx PlAnNiNg.” Couple of years back when I heard about tax havens, I had an idea why not create a service for individuals/small business people who can use it to open offshore bank accounts and use the same loopholes to save/ minimize taxes legally. Ofcourse I did not have the motivation to do all the research needed for this service but I still wonder if there is such a service for the little guy.

listenallyall 6y ago

People love to vote for politicians who promise massive, but vague, tax credits for green energy, for worker education programs, for locating in "opportunity zones," for making capital investments, all kinds of stuff ... and then they love to be outraged when companies actually do those things and eliminate the majority of their tax bill.

chickenmonkey 6y ago
Is your concern about the vagueness of the proposed plans or the outrage at tax bills?
- listenallyall 6y ago
  My concern is that Americans consistently support and vote for bills and tax laws that ultimately work against most regular people (of which I am a member), because politicians use words like "green energy" and "get Americans back to work", etc. Sometimes politicians even pay $1400 per person so people won't question the rest of the bill. What are you concerned about?

brian_herman 6y ago

https://web.archive.org/web/20210405104053/https://itep.org/pandemic-profits-netflix-made-record-profits-in-2020-paid-a-tax-rate-of-less-than-1-percent/ https://web.archive.org/web/20210405104053/https://itep.org/...

Erlich_Bachman 6y ago

Is that calculation really correct? Does it count tax for all the employees? Does it count all specialized tax for things like gas or VAT, for all the things Netflix buys in their operation? What about all the media that Netflix buys and produces? What about all the taxes levied there on salaries and other activities? The article also talks about "income" and not "revenue"...

iamgopal 6y ago
They are selective in only direct taxes.
jan_Inkepa 6y ago
Does anyone know the appropriate metric here to use/term to look up? I too wish that was taken into account.
Zanni 6y ago
The numbers don't make sense to me. Their annual report [0] says pre-tax income of $2 billion, not $2.8 billion (p41). Even if you disallow deducting interest expense and use operating income, that's still only $2.6 billion. Meanwhile, they're paying $400 million in taxes (p43). That looks a lot more like 20% to me than 1%. What am I missing? [0] https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_NFLX_2019.pdf https://www.annualreports.com/HostedData/AnnualReports/PDF/N...
varispeed 6y ago
> Does it count tax for all the employees? Why do you think it is okay for a corporation to appropriate the tax employees pay as theirs? Employee pays this tax, not the corporation.
- matwood 6y ago
  They are probably referring to the fact that 1/2 the payroll tax is paid by the employer. The employee does not pay this tax, and it is directly paid by the employer for every employee.
- 6y ago

tlholaday 6y ago

> Among the mechanisms Netflix is using to achieve its next-to-nothing tax liability are accelerated depreciation (which appears to have cut the company’s tax expense by $148 million); deductions for stock options for Netflix executives and other employees ($339 million); and research and development tax credits ($113 million). These are straightforward deductions.

foobarian 6y ago
> and research and development tax credits ($113 million). This is why you fill out your timesheets people!
- TheJoeMan 6y ago
  It seems wild to me that this R&D credit is probably targeted towards new technology that will improve the world, and not Netflix working out how to reduce video lag by an additional 0.2%
  - reducesuffering 6y ago
    Have you ever heard of Chaos Monkey? https://netflix.github.io/ https://netflix.github.io/
lotsofpulp 6y ago
It’s almost predictable which “hot takes” will get clicks/attention.
- carmen_sandiego 6y ago
  I don't think it's almost predictable, I think it is predictable and that's why editors do it.
christophilus 6y ago
They are. I’d be pretty upset if I wasn’t able to deduct such expenses from my taxes.

varispeed 6y ago

This is crazy how economy is tilted in favour of these big corporations. If you are a worker, it is not uncommon to pay over 40% of tax and if you work on your own small business you can pay even more and have very little left to reinvest. Then you have progressive tax that is preventing you from saving much - if you want to save for a deposit to buy a house, spend time on education and getting a better job, you'll get hit by much higher tax and it will take ages to save anything. Such taxes are often sold to the public as taxes on the rich, but rich people can easily afford ways around it. I'll vote for any party that will reshuffle the tax system, so that big corporations will have to pay tax just as any other business and tax progression will be removed, so that people will have a chance of levelling up. They should also add a tax on spending money with offshore cards, dividends and so on so that the rich will pay what they are supposed to pay.

tenaciousDaniel 6y ago
Yep. I just got an equity payout from an acquisition. It’s a lot of money, though it isn’t going to allow me to retire early. Would be enough for a house down payment, which is good enough for me! However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.
- lotsofpulp 6y ago
  How was it paid out that your federal income tax liability is 40% Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.
  - sokoloff 6y ago
    They didn’t claim their federal tax liability was 40%; they claimed they were paying 40% total tax rate on the acquisition-related income, something which is true for most employees in most states for many acquisitions.

crispyambulance 6y ago

It would be perfectly fine for corporations to pay comically low taxes--- IF they also had NO ability to fund large-scale lobbying operations and were not allowed to put unlimited amounts of money into political campaigns. That's NOT ever going to happen. But now is the best time for the tax part to change. The economy has been floated by unprecedented government pay-outs, narrowly avoiding a deep depression that would have crushed even the most cash-flush corporations. If certain people have their way, the working class will foot the bill for this for decades to come. Maybe it's time for those who thrived through this to pay their share just like in the post-WWII era where max tax rates reached 80+% up until the early 60's?

tlholaday 6y ago
> ... unprecedented government pay-outs ... The G.I. Bill after World War 2 is a precedent. Do you think CARES is larger, or smaller?
- _huayra_ 6y ago
  It's larger, but less effective. The G.I. bill gave resources to veterans to advance their lives while the 'rona-based payouts disproportionately affected the already-wealthy individuals and businesses due to the military-industrial-congressional complex. It's not so much whether it's larger or smaller, but how well it was spent. Free college and the myriad other benefits in the G.I. bill helped build the US into a superpower (well combined with other fortuitous things, like being the only major industrial power that hadn't been bombed to smithereens). The bailout of large industries that a lot of the CARES act went to were not well spent: it was cronyism to prop up underprepared corporate structures (i.e. those that have hollowed out any "emergency fund" due to it being an overhead to their bottom line) and prevent bankruptcy from enabling other folks to come in and perhaps run things better.
  - matwood 6y ago
    > prevent bankruptcy from enabling other folks to come in and perhaps run things better. Yeah, while I think the CARES act helped individuals, there's no need to try and save every business. Take restaurants for example. In good times, most restaurants fail, and new ones start. The narrative that if restaurants failed they would never come back was simply untrue.

albaniac 6y ago

However, it should also be noted that in order to achieve such a profit, a lot must be invested.

LatteLazy 6y ago

Netflix paid no dividend right? And Netflix has not (so far) run a share buy back. So they're either sitting on the excess cash, or they've spent it making more programs. In either case this is exactly what the current tax code is designed to incentivise. Businesses should invest. That's the whole point of taxing profits not net income...

Fern_Blossom 6y ago
If they're using their profits for purchases or hiring folks for new shows, the "tax" comes out of the sales tax and the income tax. I mean, this isn't as mustache twirling as people are making it out to be. The tax code is not that messed up. It has problems yes, but being pissed at a company that's reinvesting their income and not showing a profit is like complaining that the guy/gal that's been running for years won a race. It's not like the tax code is reserved only for a select few. It applies to all Americans. Play the game.

williesleg 6y ago

How much did the Netflix workers make and how much taxes did they pay?

alvah 6y ago

Company generates revenue, offsets costs against that revenue, pays tax on the balance. Yawn.

sumedh 6y ago
> offsets costs against that revenue, pays tax on the balance. Yawn. How does it offset them, does it use some shenanigans like other companies?

refurb 6y ago

Carry loss forward....again? No! Exciting it something different. Looks like depreciation (those bastards!) and R&D tax credits. How devious! Maybe reporters should get an accounting primer before writing articles about taxes?

carmen_sandiego 6y ago
It's not even just about taxes. Economists largely agree generally low corporation tax is good for everyone. > Maybe reporters should get an accounting primer before writing articles about taxes? That will just make them feel bad when they choose the clickbait anyway. HN is a semi-rarefied atmosphere and even these comments are mostly ignorant rabble. No way the journalists are giving up the sensational headlines for a general audience. Engagement gold dust.
- someguydave 6y ago
  agreed, if you think this article points to a real scandal you are an ignorant rube - netflix’s low tax bill is justified by reasonable tax spending
varispeed 6y ago
Why can't employee distribute their income through past years when they had worse times like corporations can, to lower their tax? Why can't employee use pre-tax income to pay for IP? Why can't employee get R&D tax credits? and so on...

villgax 6y ago

Can people band together & save money doing the exact same thing?

6nf 6y ago
You could incorporate
- villgax 6y ago
  But like still be on payroll & ask your OG company to pay this new company instead of you directly, has anyone done that or am I just re-inventing contract work?
tomcam 6y ago
They could, by investing in a business. Like Netflix they would reap the rewards of the tax code, which means they would be taking on the same risks. A less risky version of this is stock ownership, or buying an index. Because it’s less risky, potential rewards are lower.
TuringNYC 6y ago
Ask any of a thousand startups gone dark -- tons of people try. Many fail. You lose your time and your personal investment. Ask me how I know (hint: 3yr full time co-founder) If you make it somehow, you have the benefit of deducting your R&D against profits, which seems fair to me...Except then people get upset (see comments on this page) that you "aren't paying your fair share of taxes." This seems ludicrous given how many years startups spend burning their own money to hope to reach the point Netflix has reached. Good for Netflix.

miltonlaxer 6y ago

Yeah next they're gonna say Netflix should be government run. Keep pressing the naritive till it hurts netflix's bottom line and they bend over. I hate the corporations vs people, rich vs poor, etc. This is nonsense.

hermitcrab 6y ago

It is well past time for progressive taxation on corporations and the super rich and to really go after tax evasion. Unfortunately, politicians in the UK, US and elsewhere don't have the polticial will as they are in the pockets of the powerful people who benefits from the current rigged system. In the UK, for example, the newspaper are almost entirely owned by right wing billionaires.

rataata_jr 6y ago

Less money to the govt. the better. I think they have good auditors.

fareesh 6y ago

How much did their employees pay? Including all the actors who worked on the shows they funded.

benjaminwootton 6y ago

In theory they will be paying corporate taxes on profits abroad. I assume they are dodging those taxes as well, but to take net global income and measure that against federal income tax in the US is a flawed calculation unless you are asking for double taxation. Amazing scale though. It shows the power of cutting out middlemen when they are going direct to consumer without gatekeepers such as cable companies.

hnmullany 6y ago

Netflix recorded a worldwide income tax accounting expense of about 13.7% last year ($438M on $3.2B of Net Income). It also paid cash taxes of $292M (cash taxes differ from accounting taxes because of timing issues - just like revenue is not the same as cash-in). A lot of growing companies have US taxes that are quite low because they lose money for a long time while they're investing in growth. When they finally become profitable, they're allowed to roll forward those losses (within limits) to offset their profits. That's where a lot of these "Zero taxes paid" headlines come from. On the other hand there is a legitimate gripe about using IP offshoring to shift profits to low-tax countries and out of the US, using accelerated depreciation to decrease current year profits, allowing tax deductibility of interest and lots and lots of tax deferrals and deductions for property transactions.

throwaway667555 6y ago
Adding one thing: in the past, mega-companies spent money on tangible assets which were depreciated over time as they produced income. Now mega-companies spend money on intangible assets but they can expense immediately, so tax is deferred and they can grow without that tax friction. Dollars spent are the same, but expensing is accelerated, shrinking tax and unleashing growth, and the cycle continues. It’s kind of a cheat, or at least an unintended omission from old laws designed before intangible assets became the biggest assets on the planet.
- sokoloff 6y ago
  Those changes are often political incentives to sellers of the capital equipment. If you want to stimulate the sales of earth moving equipment or business jets, allow buyers to write it off faster. (Frankly, I’d rather encourage the sale of durable productive equipment than other types of tax incentives which stimulate less future productive activity.)
- gamblor956 6y ago
  Now mega-companies spend money on intangible assets but they can expense immediately, so tax is deferred and they can grow without that tax friction. Acquired intangible assets must be amortized (aka depreciation for things that don't physically exist) over 15 years, not immediately (some intangibles can be amortized over a 3-5 year time frame). And self-developed intangible assets cannot be amortized at all.

Proven 6y ago

Less than 1% is too much. What valuable service do governments provide to Netflix? If Netflix could choose to do business with governments, they'd likely buy nothing from them. And remember that all Netflix customers and employees already pay too much tax related to Netflix business.

LightG 6y ago

Does anybody in the "know" understand if this is just prior year losses being set against current year profits. Or is this something else? It makes all the difference. Thanks

chaoxu 6y ago

I actually don't get why corporation should pay taxes. When the profit of the company is distributed, or paying the employees, the employees/shareholders will be taxed on that money.

Black101 6y ago
So it would be fine if only corporations would pay taxes? Get rid of all income tax, sales tax, etc...
- deleted 6y ago
  [deleted]
cjpearson 6y ago
Corporate taxes allow governments some level over control over corporate policy by incentivizing certain behaviors through deductions/credits etc. Also, dropping the corporate tax rate to 0 would probably be politically impossible, even an identical amount was then taxed on the individuals who benefit.
- hntrader 6y ago
  On the other hand, corporate taxes advantage large multi-national corporations over smaller companies because they have the resources and capability to manoeuvre around the rules and pay a lower relative tax rate. A government should be able to achieve control through Pigovian taxation, regulations and fines. I'm not convinced that a blanket corporate tax (which does indeed facilitate targeted tax breaks) is necessary beyond the other tools that already exist.
- TheCoelacanth 6y ago
  Corporate taxes should be structured more like usage fees instead of being a tax on profits. Want to emit carbon? It costs $X/ton. You shouldn't get away with doing bad stuff for free just because you did it unprofitably.
- gruez 6y ago

pinky1417 6y ago

One aspect I haven’t seen mentioned in the comments or in the article: double taxation. One of the drawbacks of structuring a business as a c-corp is that you have double taxation: once, at the corporate rate then again at the individual income tax rate if the corporation distributed earnings to shareholders. An advantage of that, however, is that if you’re investing for the future, double taxation can be more efficient. If my business makes $100 before taxes, I can reinvest about $80 for future growth if it’s a c-Corp but if it’s a pass-through entity (like an LLC or S-Corp designated as a pass-through), I may only be able to invest $60 because I pay ordinary income rates on earnings. Put another way: in the steady-state, corporate shareholders end up paying big taxes because distributions are taxed once again at ordinary income rates.

episteme 6y ago
This is always brought up but it isn't double taxation, the individual is paying income tax and that has nothing to do with the corporation tax.
- Erlich_Bachman 6y ago
  The government takes tax from the same amount of money twice. How is that not well described by the term "double taxation"?
  - frankydp 6y ago
    The government also collect payroll tax on the employee income from the employer. So it double-taxation+
  - drdec 6y ago
    Money is not taxed [1], transactions are taxed. [1] At least, not yet. Elizabeth Warren would like it to be. Edited for formatting
  - TheCoelacanth 6y ago
    The entire concept of "double taxation" is BS. All money is taxed multiple times as it moves around. If I get paid a wage, my employer pays payroll tax, then I pay income tax. Then when I buy something with it, I pay sales tax. Then the company I bought it from pays payroll tax on it when they pay it out to an employee, then the employee pays income tax on it. Then they pay sales tax when they buy something with it, and so on.

exabrial 6y ago

I don't really have an issue with this. 1% tax is more than sufficient to run this country. The first step to a balanced budget is to stop impulse spending on dumb stuff. My only gripe is I'm not allowed to pay a 1% tax, as I should be.

matwood 6y ago
> The first step to a balanced budget is to stop impulse spending on dumb stuff. The problem is that 'dumb stuff' is different for everyone when it comes to country level expenditures.
- christophilus 6y ago
  This is a decent point in favor of generally decentralized government. More local decisions, fewer federal decisions.
- exabrial 6y ago
  We can generally agree, paying $5 for a desk is dumb. Sorry, typo, that's $5k, not $5. https://www.forbes.com/sites/adamandrzejewski/2015/10/01/epa-supersizes-furniture-cost-while-downsizing-2000-employees https://www.forbes.com/sites/adamandrzejewski/2015/10/01/epa...
  - matwood 6y ago
    The EPA had an annual budget in 2015 of $8B. So let's say they overpaid 2x for the furniture, and we fix that. Now we've saved ~.6% of their overall budget. Nowhere near enough to run the country on 1% taxes. Articles like that are the definition of outrage inducing bike shedding.

mmd45 6y ago

most of the replies here are yawning at offseting profit with expenses. my reading seems to indicate that ISOs can be used to effectively convert corp tax/ordinary income to capital gains. is this correct?

sreeramb93 6y ago
Yes, ISOs are for employees and very good ones. US subsidiaries in India do not offer ISO stock and ask us to pay 30% per requisite tax on unfair market valuations

rev_d 6y ago

What's also quite gross about this is that we have large multinationals paying zero in taxes to the US government, but there are small businesses owned by overseas US citizens that are being subjected to both resident country & US tax due to the US being "unique" in its practice of taxing overseas citizens. If you're small, you get hit by the tax. If you're big enough for creative structuring, you're fine. It's just as disgusting when you get down to individual tax. Larger companies are for the most part taxed territorially (where they make the money) while individuals are fully (and often in ways that are incompatible with local market practice) liable for US taxes, even if they live outside the US.

pc86 6y ago
It's only "quite gross" if you have a... gross misunderstanding of how taxes work. They're not paying zero taxes on profit, they haven't profited yet except on arbitrary time scales. Here's a... gross oversimplification: Year 1: Lose $50 million. Total profit: -$50 million. $0 taxes paid. Year 2: Lose $10 million. Total profit: -$60 million. $0 taxes paid. Year 3: Make $35 million. Total profit: -$25 million. $0 taxes paid. People who are either uninformed or petulant ideologues scream about you not paying taxes on $35 million in profit.
- rev_d 6y ago
  The big thing with the multinationals is that they're able to pull stunts like corporate inversions & royalty payments to their foreign entity to reduce their profit under the (more heavily taxed) US entity. Then you have measures intended to rein them in like GILTI & Transition Tax, which end up mostly affecting smaller businesses.

deleted 6y ago

[deleted]

cwhiz 6y ago

Corporate taxes are such a waste of time. Corporations aren’t ever going to pay them so we just end up with all the downsides. Missing out on local investments, IP offshoring, and the capital gains tax rates. So what we have is a class of people paying significantly lower tax rates than they should be, corporations not paying anything at all, and investment money shifting out of the US. But at least we can claim to have a progressive tax system, or whatever it is that idealists want to call it.

mmcconnell1618 6y ago

Scott Galloway made an interesting point in this Land of the Giants podcast about Amazon. He points out that Amazon convinced Wall Street it doesn't need to show profits and can reinvest more capital into growth than their competitors. Walmart and Target are expected to show profits to their investors on a quarterly basis while Amazon (and Netflix in this case) get to invest more cash that isn't taxed yet. This gives them a competitive advantage unless Walmart can convince investors that it will stop showing profits in order to reinvest in some growth opportunity. https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGhvbmUuZm0vbGFuZG9mdGhlZ2lhbnRz/episode/YmZkZGQ1OTgtYTRjMy0xMWU5LTkwYTAtZWIyY2RhZTE5M2Nj?sa=X&ved=0CAUQkfYCahcKEwiA3suKlefvAhUAAAAAHQAAAAAQAQ https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGh...

bradleyjg 6y ago
If GAAP earnings were the same as taxable earnings at least a company would have to go convince Wall Street. As it stands a company can tell Wall Street its wildly profitable and the IRS it makes nothing.

eric_b 6y ago

We have progressive taxation for individuals - why not for corporations? I don't have an army of accountants to avoid the corporate tax rate for my small business. So as a percentage I pay vastly more taxes than the multinationals. Why can't we have varying rates depending on the size of the business?* Bigger businesses have a bigger tax rate. This would also incentivize organizations to stay small. *Calculating the size of a business is tricky. Is it revenue based? Number of employees? Does it change per sector? Anyways, I'm sure it's possible to find a decent set of metrics.

dragonwriter 6y ago
> We have progressive taxation for individuals - why not for corporations? Because corporations are, by nature, arbitrarily divisible, so progressive taxation for corporations just encourages division of corporations into units that pay the minimum tax rate. There are business forms that allow businesses (often, but not exclusively, small businesses) to avoid corporate taxes entirely (S corps and passthrough LLCs), whule also providing the benefits of incorporation compared to sole prop and partnership forms.
- eric_b 6y ago
  This isn't true practically though. Most multinationals consist of dozens of sub-entities but the books all still roll up to the parent. If Google wanted to "get smaller" they would literally have to break apart, which is the same thing that the anti-trust folks want them to do. This seems to solve it neatly in my mind.

lebuffon 6y ago

"I been rich an' I been poor and rich is better" Ella Fitzgerald

02020202 6y ago

nothing illegal, just a bunch of commies crying in envy. wah.

browningstreet 6y ago

Might be time for a gross revenue tax for companies pulling in more than $B

clairity 6y ago
yes, and instead, it should be a smooth function on size to avoid discontinuities (like the $1B threshold) that encourage exploitation.
thehappypm 6y ago
Corps would find a way around it. They always do. Maybe Netflix could spin off one of its studios into a $999M business, of which Netflix conveniently owns a 51% stake in.
- browningstreet 6y ago
  > Netflix annual revenue for 2020 was $24.996B, a 24.01% increase from 2019. Would they go to the trouble of making themselves 25 different companies? There might be a way for lawmakers to figure this out... -- https://www.macrotrends.net/stocks/charts/NFLX/netflix/revenue https://www.macrotrends.net/stocks/charts/NFLX/netflix/reven...
  - thehappypm 6y ago
    Even splitting off 1 company, and shielding that $999M in revenue from the higher tax burden, would make sense for Netflix.
    - browningstreet 6y ago
      Versus paying $0 on the whole. Fine, I'll take it.

valuearb 6y ago

According to the article most of their write-offs were from the exercise of ISOs, which is treated differently in tax caclulations than in GAAP accounting. So the company reports a different profit to it's public shareholders than it does to the IRS. When Sarah the employee gets options to buy 1,000 shares of company stock at $10, and the stock is trading at $10, those options have value. GAAP has the value estimated based on standard options pricing models (Black Scholes presumably), ie. the volatility of the stock implies how often the options will vest with value. So the company takes a GAAP expense for Sarah's options grant, lets guess $2 per option which would reduce reported profits by $2,000 total that year. But the IRS doesn't allow this expense for tax calculations. For taxes the company has to wait until the employee exercises the option, then it is required to deduct the difference between what the current stock price is and what the employee paid. So a years later when the stock is at $100, Sarah exercises her options for a windfall of $100,000 in stock that only costs her $10,000, the company gets a tax deduction of $90,000. The site (in a linked essay) points out how much larger these tax deductions are than the actual GAAP expense and tries to spin this as some sort of tax dodge (even though companies are required by law to follow tax accounting and GAAP rules). But here is the problem with their perspective. What if the stock price went down? If Sarah does not ever exercise her options, the company never gets any tax expense for them, even though the OPTIONS CLEARLY WERE A COST TO THE COMPANY. The author is making the old have your cake and eat it too argument. In reality only if the company is successful is the tax code treatment of options beneficial, when it's not successful the treatment is unfair. Note: If you don't think out of the money stock options are valuable, go to your broker and demand some September Tesla $1,000 call options for free because they "aren't worth anything yet" and see how far that gets you.

naveen99 6y ago

Clickbait, how is this 1% tax rate defined ? Clearly not from taxable income. From revenue ?

novaleaf 6y ago

Serious question: Anyone know of or building a "Tax Avoidance Service"? Maybe the only way to get these loopholes shut down is if its made available to everyone.

passivate 6y ago

If the US government were politically pressured to shrink their military budget, that would make more money available for Medicare/Education/SSA/Infrastructure, etc. That would be way more beneficial than taxing Netflix more.

JaceLightning 6y ago

Title is wrong and dumb. Netflix made record INCOME, not profits. You pay tax on profits. Not income.