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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

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.
  - throwaway667555 6y ago
    I don’t see the assets on their balance sheets? I.e, they’re being expensed. Our disagreement is about the definition of intangible asset. Under current regulations, intangible assets are understated versus reality. This is my point.
deleted 6y ago
[deleted]
bradleyjg 6y ago
> 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. Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth and then make $800k as an orthopedic surgeon at age 30, and you’ll pay the top marginal rate. You don’t get to go back and use all the unused 24% bracket income from prior years. You also can’t deduct the interest on the loans you took to finance that growth.
- refurb 6y ago
  Student loans interest is deductible at lower incomes. You can deduct mortgage interest (investing in long term housing). You can defer taxes on income through a 401k. It’s not like individuals don’t have mechanisms to save on taxes.
  - bmj 6y ago
    This isn't really equivalent. The current maximum deduction for tuition is 4000$, and that gets phased out at incomes above ~150000$ if you are filing jointly. I have no idea what the limit on a corporation carrying forward losses is, but I'm sure the percentage is significantly greater. Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? And, many of the common deductions (mortgage interest, charitable deductions, tuition) all have caps. I don't believe there's a cap on a corporation carrying forward losses from year to year.
    - sokoloff 6y ago
      Why should there be a cap on carrying forward losses? There’s no cap on individuals carrying forward capital losses.
      - bradleyjg 6y ago
        Why should there be a cap and income phaseout on student loan interest deductions?
Ceezy 6y ago
So Amazon is loosing money is the US? Starbucks is loosing money in UK and Disneyland is loosing money in France? Please shifting profit is not normal there is no reason a company can do it and average people can't.
- gsnedders 6y ago
  In many industries it's hard to quantify the value of imports from the parent company. What is the value of the software engineering services Amazon US provide to Amazon UK, maintaining amazon.co.uk? Because, rationally, that's an expense of the UK company. How much in the Starbucks brand worth? How do you distinguish a franchise from a subsidiary? If Starbucks split in two, with Starbucks Corporation maintaining only the trademarks and associated IP, and sold all the actual stores it owns to a second company Coffee Shop Corporation which started off as a franchise (and there exist franchised Starbucks stores today), which then paid licensing fees to the franchisor, would that be any different? Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard.
  - goatinaboat 6y ago
    Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard. The very, very easy solution is for every corporate entity to be taxed on revenue in each jurisdiction. E.g. if I am in the UK and I spend £4 on a coffee in Starbucks then their legal entity in the UK now owes the taxman £0.40 (for example). How they pay their operating costs and internally transfer the remainder of £3.60 to their parent company is up to them.
    - scrollaway 6y ago
      You just reinvented VAT.
Dracophoenix 6y ago
Wasn't that the point of GILTI legislation in the Trump administration's final tax bill? I would think it's no longer as easy as it was to store IP earnings overseas as it was during the Double Irish days.
londons_explore 6y ago
I wonder what would happen if an entirely new approach to taxation were tested. A jury of 12 random people would inspect a companies accounts, assets etc and decide if the tax paid is "fair". The jury would have no training in tax matters, but would be presented documents produced by the government and the company to argue their cases. If the tax paid is found to be unfair by the jury, the company gets nationalised with no compensation to shareholders. The government could re-privatize it by auctioning it off again.
- batch12 6y ago
  So it would be like a criminal trial and be swayed by emotion and presentation-- not the law. I would imagine companies would just move out of the country's jurisdiction, be founded elsewhere, or shut down. I think this would devolve into show trials led by fickle public opinion. Sounds like a bad idea.
- sokoloff 6y ago
  That sounds sure to spur a lot of productive activity and long-term investing to support same.
- kube-system 6y ago
  Predictability is one of the biggest determining factors in economic stability. Places with a weak rule of law are typically not places that people consider well run.
- Erlich_Bachman 6y ago
  That is just a very terrible idea.
- throwaway9870 6y ago
  Nobody in their right mind would ever create a company in that environment. No bank would lend you money. Nobody would invest. Would you invest your life savings in a company when a random jury could just take it away?
SavantIdiot 6y ago
> A lot of growing companies have US taxes that are quite low Netflix has been around for 20+ years
- easton 6y ago
  But they pivoted models (twice, if you count both streaming and the shift to original content over other companies IP). There’s a ton of spending with that, and they are still gaining subscribers.
- frockington1 6y ago
  They are still growing, growth can happen at any and often multiple times
  - SavantIdiot 6y ago
    Define growth? How do you prove: "Hi I'm company X and I'm growing so I shouldn't have to pay taxes" isn't full of BS and slick accounting? Because you know if there are rules corporations are going to lie their way around them. Better have fewer rules and more consistent taxes. But lobbyist love to make things complex so that corporations can cheat.
  - lm28469 6y ago
    Amazon and Google are still growing too.. I don't feel like these are good basis to decide who pay or not taxes. Should we only tax companies that are collapsing ?
thehappypm 6y ago
Controversial opinion: companies with zero profits should be encouraged, not vilified. A company that isn't profitable means every dollar that flows into the company flows out. It flows out to other companies, to payroll, to R&D, to charities. That's where the real economic engine is -- money flowing, investment happening. And plenty of taxes come from it, too. Companies pay taxes when they start hoarding profits instead of investing them. That's a good thing.
- rrrrrrrrrrrryan 6y ago
  Companies with lots of cash on the balance sheet aren't necessarily just lazily "hoarding profits." Having cash on hand lets them nimbly acquire smaller companies, them lets them lock in lower interest rates on any debt, and helps them make it through rough spots without government aid (like the recent pandemic, for example). I'd argue that these are also "good things". There's a reason corporate income taxes aren't tremendously popular among economists (even many economists on the left). Companies are capable of deciding how much cash to keep on their balance sheet, and any government nudges via tax policy are probably introducing some distortions. If we want to tax piles of stagnant wealth, we should tax the wealth directly: estate taxes and land value taxes don't introduce many distortions. If we want to tax companies, we should look at VATs (which are relatively non-distortionary), or perhaps heavy pigouvian taxes to offset negative externalities (e.g. a carbon tax).
algo_trader 6y ago
> deductions for property transactions. Can u give an example for this? Especially in the context on a large, growing tech firm. I understand the basic stuff like accelerated depreciation, location arbitrage, etc

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.
- throwaway667555 6y ago
  I don’t see the assets on their balance sheets? I.e, they’re being expensed. Our disagreement is about the definition of intangible asset. Under current regulations, intangible assets are understated versus reality. This is my point.

deleted 6y ago

[deleted]

bradleyjg 6y ago

> 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. Human beings cannot do the equivalent. Spend the entirety of your 20s making very little money because you are investing in growth and then make $800k as an orthopedic surgeon at age 30, and you’ll pay the top marginal rate. You don’t get to go back and use all the unused 24% bracket income from prior years. You also can’t deduct the interest on the loans you took to finance that growth.

refurb 6y ago
Student loans interest is deductible at lower incomes. You can deduct mortgage interest (investing in long term housing). You can defer taxes on income through a 401k. It’s not like individuals don’t have mechanisms to save on taxes.
- bmj 6y ago
  This isn't really equivalent. The current maximum deduction for tuition is 4000$, and that gets phased out at incomes above ~150000$ if you are filing jointly. I have no idea what the limit on a corporation carrying forward losses is, but I'm sure the percentage is significantly greater. Yes, individuals can save on taxes, but can most of us get an effective tax rate of 1%? And, many of the common deductions (mortgage interest, charitable deductions, tuition) all have caps. I don't believe there's a cap on a corporation carrying forward losses from year to year.
  - sokoloff 6y ago
    Why should there be a cap on carrying forward losses? There’s no cap on individuals carrying forward capital losses.
    - bradleyjg 6y ago
      Why should there be a cap and income phaseout on student loan interest deductions?

Ceezy 6y ago

So Amazon is loosing money is the US? Starbucks is loosing money in UK and Disneyland is loosing money in France? Please shifting profit is not normal there is no reason a company can do it and average people can't.

gsnedders 6y ago
In many industries it's hard to quantify the value of imports from the parent company. What is the value of the software engineering services Amazon US provide to Amazon UK, maintaining amazon.co.uk? Because, rationally, that's an expense of the UK company. How much in the Starbucks brand worth? How do you distinguish a franchise from a subsidiary? If Starbucks split in two, with Starbucks Corporation maintaining only the trademarks and associated IP, and sold all the actual stores it owns to a second company Coffee Shop Corporation which started off as a franchise (and there exist franchised Starbucks stores today), which then paid licensing fees to the franchisor, would that be any different? Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard.
- goatinaboat 6y ago
  Like, there's definitely questions to be had about international accounting, but some of the complexity is because national subsidiaries rarely operate in isolation, and valuing much of what they get from their parent organisation is exceptionally hard. The very, very easy solution is for every corporate entity to be taxed on revenue in each jurisdiction. E.g. if I am in the UK and I spend £4 on a coffee in Starbucks then their legal entity in the UK now owes the taxman £0.40 (for example). How they pay their operating costs and internally transfer the remainder of £3.60 to their parent company is up to them.
  - scrollaway 6y ago
    You just reinvented VAT.

Dracophoenix 6y ago

Wasn't that the point of GILTI legislation in the Trump administration's final tax bill? I would think it's no longer as easy as it was to store IP earnings overseas as it was during the Double Irish days.

londons_explore 6y ago

I wonder what would happen if an entirely new approach to taxation were tested. A jury of 12 random people would inspect a companies accounts, assets etc and decide if the tax paid is "fair". The jury would have no training in tax matters, but would be presented documents produced by the government and the company to argue their cases. If the tax paid is found to be unfair by the jury, the company gets nationalised with no compensation to shareholders. The government could re-privatize it by auctioning it off again.

batch12 6y ago
So it would be like a criminal trial and be swayed by emotion and presentation-- not the law. I would imagine companies would just move out of the country's jurisdiction, be founded elsewhere, or shut down. I think this would devolve into show trials led by fickle public opinion. Sounds like a bad idea.
sokoloff 6y ago
That sounds sure to spur a lot of productive activity and long-term investing to support same.
kube-system 6y ago
Predictability is one of the biggest determining factors in economic stability. Places with a weak rule of law are typically not places that people consider well run.
Erlich_Bachman 6y ago
That is just a very terrible idea.
throwaway9870 6y ago
Nobody in their right mind would ever create a company in that environment. No bank would lend you money. Nobody would invest. Would you invest your life savings in a company when a random jury could just take it away?

SavantIdiot 6y ago

> A lot of growing companies have US taxes that are quite low Netflix has been around for 20+ years

easton 6y ago
But they pivoted models (twice, if you count both streaming and the shift to original content over other companies IP). There’s a ton of spending with that, and they are still gaining subscribers.
frockington1 6y ago
They are still growing, growth can happen at any and often multiple times
- SavantIdiot 6y ago
  Define growth? How do you prove: "Hi I'm company X and I'm growing so I shouldn't have to pay taxes" isn't full of BS and slick accounting? Because you know if there are rules corporations are going to lie their way around them. Better have fewer rules and more consistent taxes. But lobbyist love to make things complex so that corporations can cheat.
- lm28469 6y ago
  Amazon and Google are still growing too.. I don't feel like these are good basis to decide who pay or not taxes. Should we only tax companies that are collapsing ?

thehappypm 6y ago

Controversial opinion: companies with zero profits should be encouraged, not vilified. A company that isn't profitable means every dollar that flows into the company flows out. It flows out to other companies, to payroll, to R&D, to charities. That's where the real economic engine is -- money flowing, investment happening. And plenty of taxes come from it, too. Companies pay taxes when they start hoarding profits instead of investing them. That's a good thing.

rrrrrrrrrrrryan 6y ago
Companies with lots of cash on the balance sheet aren't necessarily just lazily "hoarding profits." Having cash on hand lets them nimbly acquire smaller companies, them lets them lock in lower interest rates on any debt, and helps them make it through rough spots without government aid (like the recent pandemic, for example). I'd argue that these are also "good things". There's a reason corporate income taxes aren't tremendously popular among economists (even many economists on the left). Companies are capable of deciding how much cash to keep on their balance sheet, and any government nudges via tax policy are probably introducing some distortions. If we want to tax piles of stagnant wealth, we should tax the wealth directly: estate taxes and land value taxes don't introduce many distortions. If we want to tax companies, we should look at VATs (which are relatively non-distortionary), or perhaps heavy pigouvian taxes to offset negative externalities (e.g. a carbon tax).

algo_trader 6y ago

> deductions for property transactions. Can u give an example for this? Especially in the context on a large, growing tech firm. I understand the basic stuff like accelerated depreciation, location arbitrage, etc