How did Netflix stop paying income tax in 2018? | Media

N etflix has made many news this week, and it is not because of the Ted Bundy documentary or all the customs that challenge Bird Box . No, it's even more lunatic, especially for those who oppose the company's greed and unequal income: The company paid virtually no US taxes in 2018.

According to a blog post from the Department of Taxation and Economic Policy, the company posted it biggest ever profit in 2018 – $ 845m – but paid no federal (or state) income tax.

"After a year of speculation and spin, the public gets their first hard look at how corporate tax law changes during the tax Cuts and Jobs Act affected the tax-paying habits of companies," said senior member Mathew Gardner. tax evasion and reduced others. The new tax law came into force at the beginning of 2018, which means that the companies just closed the books on their first full year under the new rules. "

This story kind of confirms a post I wrote last week about how beneficial effects of the 2017 tax reform will not create until this year, when businesses and people begin to make their 2018 returns. Think of it: How many other companies will see their tax bill go down like Netflix? And remember, this is not even one thing: how will these lower prices affect future spending and investment?

We can discuss these issues and whether these companies will use the savings to reinvest or hire more people But for now it's what I want to explain. How did Netflix pay no taxes on this income?

The company has not disclosed many details, so I can only do some trained hunches, the publicly available information has probably given us some In fact, when you look at Netflix's reported deferred tax asset – which represents future tax savings that one day will be realized – the answer begins to clarify.

The explanation has to do with only two words: tax credits. Remember that a tax "credit" is not a deduction. You use a credit directly against the tax you owe. If you do not use the credit, it can transfer to future years.

Therefore, even though Netflix actually paid $ 131 million in foreign tax in 2018 – which would cost about 15.5% of the revenue rate is now 21% – it didn't have to do the same in this country. US tax law – goes well back before 2017 Tax law and the Labor Act – has given companies (and individuals) a claim for tax on certain foreign income in order to avoid double taxation. How did Netflix, a US company, distribute so much of its revenue abroad? I don't know and it will make an interesting story. But the bottom line is that Netflix still paid taxes, just not in the US.

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