N etflix made a lot of news in the last week, and that's not due to the documentation of Ted Bundy or all the fools who participated in the Bird Box challenge. No, it is still a little annoying, especially for those who counteract the corporate greed and income inequality: the company paid virtually no US taxes in 201
According to a blog post from the Institute for Taxes and Economic Policy, the company wrote However, the largest gain ever made in 2018 – $ 845 million – did not pay federal (or state) income tax.
"After a year of speculation and speculation, the public first gets a first glimpse into how corporate tax law is changing under the tax bill. The law on cuts and employment has influenced the tax practices of companies," wrote senior colleague Mathew Gardner. "The law has sharply reduced the federal corporate rate, extended some tax benefits and restricted others. The new tax law came into force at the beginning of 2018, which means that under the new rules, companies are closing books only in the first full year. "
This story confirms some kind of post I wrote last week about how the positive effects of the 2017 tax reform will not materialize until this year, when companies and people start earning for 2018. Think about it: How many other companies will see their tax bill drop like Netflix? And remember, this is not a one-time deal: how will these lower interest rates affect future spending and investment?
We can debate these issues and whether these companies use their savings to invest or employ more people. But right now I want to explain how. How did Netflix pay any taxes on all of this revenue?
The company has not revealed much detail, so I can only make a few educated guys. The publicly available information has certainly given us clues. If you look at Netflix's deferred tax assets, which are the future tax savings that will eventually be realized, the answer will begin to be clarified.
The statement has only two words: tax credits. Remember that a tax credit is not a deduction. You apply a credit directly against the tax due. If you do not use the credit, it may be transferred to future years.
This is the reason, even if Netflix actually paid 131 million US dollars of foreign taxes in 2018 – which corresponded to about 15.5% of its income (the US corporate tax rate is now 21%) – it had to do not do the same in this country. US tax law, which preceded the 2017 tax cuts and employment law, allowed companies (and individuals) to receive a tax credit for certain foreign income in order to avoid double taxation. How has Netflix, a US company, spent much of its income abroad? I do not know, and that would make an interesting story. On the bottom line, however, Netflix still paid taxes, just not in the US.