People say that big corporations don’t pay their fair share in taxes by using loopholes. What exactly are these tax loopholes?
In: Economics
The Government wants business to do stuff, like open a factory in a poor part of town. Since businesses don’t just obey orders from the central government in the US (not a communist country), So Congress tries to **~~bribe~~** entice the business by offering them a tax break. Some of these are employment specific, allowing them to deduct the salaries of new employees hired to work in the new facility.
Businesses do this, when it’s worth it, and if they do it enough, they can use the loophole constructed by Congress to pay no taxes. It’s totally paying their fair share, because Congress built the loophole, not the company.
If a company declares a loss one year, they can count it against their taxes in following years. They can also deduct loses on assets, meaning that a company can buy an investment declare the value its lost over time against their taxes.
This is what Amazon has been doing for the most part. Despite the companies immense size and growth, on paper at least they are losing money because they keep reinvesting their profits into the company.
Giving stocks out to staff and executives is tax deductible
So is giving to charity, which is partly why all big companies are associated with a charity.
But the big one is foreign subsidiaries. Companies open up offices in countries that have very low corporate tax rates and declare their profits in that country. This is why countries like Ireland have so many Corporate headquarters located there.
Corporations do pay their fair share. The people who say they don’t pay taxes don’t understand how businesses are taxed. Businesses aren’t taxed a year at a time like individuals. If a company loses $1 million in 2020 and makes $1 million in 2021, their net profit is $0 and they have no tax liability either year. Then ignorant people scream that the company paid no taxes on a $1 million profit, when in reality their profit was $0.
They setup registered offices in countries which are tax free.
They accumulate losses and square them off with the future profits.
They spend money for purposes which qualify for tax rebates (CSR, Donations, Disaster Relief etc.)
They try to reduce taxes by increasing expenses (for example – trying to count non-business expenses as business expenses – not a legal way).
They show more income from revenue streams / sources / sectors which are tax free or tax subsidised.
They depreciate assets faster (if allowed by law) to reduce profit. (Depriciation concept is not ELI5)
They time the purchase of assets to get maximum depriciation deduction for the year.
They bargain with governments / countries and get subsidies for setting up factories / plants / businesses in those countries (in exchange of creating employment).
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