Why Amazon and Netflix Pay $0 in Corporate Taxes?
Amazon and Netflix are two of the most profitable firms in the entire world. For instance, last year, Amazon alone made over $12 billion in profits. However, it paid $0 in taxes! To make matters worse, the company was owed money in the form of tax rebates. This means that the federal government was actually going to pay Amazon money instead of collecting taxes from them! The same is the case with many large companies such as Netflix. This phenomenon is not restricted to technology companies only. For instance, there are companies like John Deere, which are engaged in the manufacture of farm equipment such as tractors and also tire manufacturers like Goodyear, which have not paid any corporate taxes in the past year.
This causes a lot of hue and cry amongst taxpayers. Sooner or later, many media outlets create sensational headlines that state that individual taxpayers are paying more in taxes as compared to these mega-corporations. The reality is that these news reports are not really false. However, they do present a misleading picture. Companies like Amazon are not cheating the United States government out of taxes. They are not using offshore corporate structures to evade taxes, and neither are they registered as foreign corporations themselves. In fact, Amazon does most of its business within high tax jurisdictions such as the United States and Germany.
Hence, the $0 tax bill is the result of some amount of tax planning and some luck. However, Amazon is within the confines of the law as far as its tax bill is concerned. There are some common tips and tricks which are used by companies to lower their tax bill. The common ones have been listed below.
It needs to be understood that companies are taxed on their income i.e., their revenues minus their expenses. Therefore, if a company is able to inflate its expenses to such an extent that as far as accounting is concerned, it doesnt generate a profit at all, then it wouldnt have to pay taxes. This is exactly how companies like Amazon and Netflix avoid taxes.
Finally, companies like Amazon are able to deduct the stock compensation paid to their employees as business expenses. We will study that in detail in the next article.

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