How is Netflix untethered to not pay income tax in 2018? | Media

NOTetflix did a lot of news this week, and it's not because Ted Bundy's documentary or all those crazy people make the birdcage challenge. No, it is even more damning, especially for those who oppose corporate greed and income inequality: the company paid virtually no US tax in 2018.

According to a blog post from the Institute on Taxation and Economic Policy, the company recorded its largest profit in 2018 – $ 845 million – but paid no federal (or state) income tax.

"After a year of speculation and fervor, the public is starting to seriously look at the changes in tax legislation in business taxation under the Employment Tax Reduction Act and the 'job', said Mathew Gardner. "The law has significantly reduced the corporate tax rate by the federal government, expanded some tax breaks and reduced others. The new tax law came into effect in early 2018, meaning that companies have just closed the accounts in their first full year under the new rules. "

This story validates, in a way, an article I wrote last week on the fact that the beneficial effects of the 2017 tax reform will only really materialize this year, when businesses and individuals start filing their returns. 2018. Think about it: how many other companies will see their tax bill decrease as Netflix? And remember, it's not a single thing: how will these lower rates affect future spending and investment?

We can debate these questions and determine whether these companies will use their savings to reinvest or hire more people. But for the moment, I would like to explain how. How did Netflix not pay taxes on all these revenues?

The company has not disclosed a lot of details, so I can only make a few enlightened intuitions. The information available to the public has certainly provided us with clues. In fact, when you look at Netflix's reported deferred tax badets – which represent the future tax savings that will be realized one day – the answer begins to be clearer.

The explanation only concerns two words: tax credits. Do not forget that a "credit" tax is not a deduction. You apply a credit directly to the tax you owe. If you do not use the credit, it can be carried forward to the following years.

That is why, even though Netflix had paid 131 million dollars in foreign taxes in 2018 – which would represent about 15.5% of its income (the corporate tax rate in the United States is now 21%) – he was not obliged to do the same thing in this country. . US tax legislation – which goes back well before the 2017 Employment Tax Reduction Act – allowed businesses (and individuals) to claim a tax credit on certain foreign exchange earnings in order to avoid double taxation. How did Netflix, an American company, allocate so much of its income abroad? I do not know and that would make an interesting story. But the bottom line is that Netflix still pays taxes, but not in the United States.