For context – I just saw a post that said for the first time since 2020 McDonald’s hasn’t made as much money or something, and their prices have increased 40% since 2019. – if big companies start losing profit because people chose to not spend their money there because they can’t afford it, Would prices ever go back down?
In: Economics
Try not to believe the corporate lies. There are several major companies out there that, according to their tax statements, have been running at small losses for …. decades.
But how is that possible? Well imagine that your family is a large international company.
Your dad is “Family International”, and he lives in a country where he pays little to no tax. These countries are called “tax havens” and they’re do this because this attracts a lot of businesses to a country that has little or nothing to offer businesses normally. The country makes money by charging these businesses fees, rental, etc. and normally does quite well out of this deal.
Your mom is “Family Brazil” and she deals with sourcing the meat and vegetables for all the “Family Burgers” sold by branches all over the world, but these are first sold to “Family International” for nearly cost, so “Family Brazil” actually makes very little money.
You are “Family India”, and your brothers and sisters are in other countries.
Now remember that technically “Family International”, “Family Brazil”, and “Family India” are **completely separate** legally speaking! Sure you’re related, but that doesn’t mean that your dad has to pay your debts, and you don’t have to pay your dad’s debts. You’re separate.
And this is how most international companies are set up. Even if the parent company owns stock in the child companies they’re completely separate legal entities.
So how does the scam work? Well you’re selling “Family Burgers” in India. You have to order your burgers from your Dad at “Family International”, so that cuts heavily into your profits because he’s not cheap and puts a heavy markup on the burgers. But that money is staying in the family so that’s okay, right?
At the end of the year you make an okay profit. Enough to pay your employees, plus a generous payout to your stockholders (and your Dad at “Family International” is your biggest stockholder)… but then one more bill arrives from “Family International”, who holds the copyright on the “Family” name brand. They want you to pay this year’s licensing fee for using the “Family” copyrighted name.
And like magic “Family India” doesn’t make any money that year. In fact you’re running at a small **loss!** Oh no! You qualify for some subsidies and tax rebates from the Indian government, but it isn’t quite enough to keep you in the green. But kindly Dad at “Family International” buys some more stock and your company is stable. Good old Dad!
… and this is how it works. On paper and through the magic of creative book-keeping using international loopholes all the actual profits are funnelled to “Family International” where the company pays zero tax.
Meanwhile all the local companies like “Family India”, “Family England”, “Family Brazil”, etc. are all (at least on paper) running at a loss year after year! And of course they have to raise prices to survive!! But mysteriously no matter how much they raise prices and no matter how many burgers they sell they always end up operating at a loss… yet never close down.
And this is the international shell game these companies play. Food prices will never come down because that would cut into their profits.
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