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).<p>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.<p>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.
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.
> 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).<p>These are straightforward deductions.
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.<p>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?
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.
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.
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"...
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.<p>Put another way: in the steady-state, corporate shareholders end up paying big taxes because distributions are taxed once again at ordinary income rates.
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.<p><a href="https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGhvbmUuZm0vbGFuZG9mdGhlZ2lhbnRz/episode/YmZkZGQ1OTgtYTRjMy0xMWU5LTkwYTAtZWIyY2RhZTE5M2Nj?sa=X&ved=0CAUQkfYCahcKEwiA3suKlefvAhUAAAAAHQAAAAAQAQ" rel="nofollow">https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5tZWdhcGh...</a>
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.<p>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.<p>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.<p>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.<p>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.<p><i>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.</i>
Netflix paid no dividend right?<p>And Netflix has not (so far) run a share buy back.<p>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...
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.”<p>It’s the only thing that will motivate the rest of the legislature to plug the holes.
I don't really have an issue with this. 1% tax is more than sufficient to run this country.<p>The first step to a balanced budget is to stop impulse spending on dumb stuff.<p>My only gripe is I'm not allowed to pay a 1% tax, as I should be.
We have progressive taxation for individuals - why not for corporations?<p>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.<p>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.<p>*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.
Carry loss forward....again? No! Exciting it something different.<p>Looks like depreciation (those bastards!) and R&D tax credits. How devious!<p>Maybe reporters should get an accounting primer before writing articles about taxes?
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.
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.
Does anybody in the "know" understand if this is just prior year losses being set against current year profits.<p>Or is this something else?<p>It makes all the difference.<p>Thanks
In theory they will be paying corporate taxes on profits abroad.<p>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.<p>Amazing scale though. It shows the power of cutting out middlemen when they are going direct to consumer without gatekeepers such as cable companies.
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?
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.
-> 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 <i>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.</i> 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.<p>Uhh.... Typo?
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?
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.<p>Missing out on local investments, IP offshoring, and the capital gains tax rates.<p>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.<p>But at least we can claim to have a progressive tax system, or whatever it is that idealists want to call it.
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.
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.<p>If you're small, you get hit by the tax. If you're big enough for creative structuring, you're fine.<p>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.