Netflix and Amazon are hitting back at reports that they paid no federal income taxes last year.
The two companies recently filed their annual reports with the Securities and Exchange Commission, as required. Based on the numbers disclosed in those reports, a think tank soon held them up as successful tech giants that don’t pay U.S. taxes.
Matthew Gardner, senior fellow for the Institute for Economic Taxation and Policy, wrote in early February that Netflix posted its biggest profit ever in 2018 — $848 million — and “didn’t pay a dime in federal or state income taxes.”
The Los Gatos-based entertainment provider says that isn’t true.
“Our financial statements show that we paid $131 million in cash taxes (globally) in 2018,” a Netflix spokeswoman said in response to inquiries from this news organization. “We don’t break out U.S. versus foreign in that figure, but there were U.S. income taxes paid in 2018.”
However, Netflix’s filing shows a federal tax rebate of $22 million in 2018.
A week later, Gardner called out Amazon for doubling its profit last year to $11.2 billion, but not paying “a single cent.” He pointed out that the company’s filing shows it’s getting a federal tax rebate of $129 million.
A company spokeswoman said: “Amazon pays all the taxes we are required to pay in the U.S. and every country where we operate, including paying $2.6 billion in corporate tax and reporting $3.4 billion in tax expense over the last three years.” She also touted Amazon’s massive footprint in the United States, saying it has a U.S. workforce of more than 250,000.
Experts said it is virtually impossible to determine exactly what corporations pay in taxes because they’re not required to release their tax returns.
“Just looking at the financial statements will not tell you exactly how much tax they’re paying,” said Hughlene Burton, associate professor of accounting at University of North Carolina at Charlotte. “The only way you can say with certainty that they’re not paying any tax is if you have this year’s tax return in front of you, which is not public.”
Burton also pointed out other factors that complicate matters. The income reported in a 10-K filing may include foreign subsidiaries that aren’t subject to U.S. taxes. Also, timing: Tax returns aren’t due until April, and the companies may not yet know which deductions they can claim under new laws.
Michaele Morrow, an accounting professor at Suffolk University in Boston, agrees. There were a lot of provisions in the Republican Tax Cuts and Jobs Act, and companies don’t know how they’re going to interpret them yet, she said. She added that the annual filing is an “opaque disclosure that doesn’t really tell you what’s going on.”
Still, Gardner “is probably right, (Netflix and Amazon) probably are not going to pay much in taxes,” Morrow said, although she and Burton both pointed out that the companies are simply taking advantage of tax breaks given to corporations.
“There’s no implication of legal wrongdoing,” Gardner said. He said he wrote about Netflix and Amazon’s taxes because they were among the first to file their annual reports after the Tax Cuts and Jobs Act has been in effect for a full year, and that the reports provide the “best glimpse” of their taxes.
“Our choice is to say nothing at all,” he said in an interview, “or use the best approximation, which is what this is supposed to be.”
In his report about Amazon for ITEP — a Washington, D.C.-based nonprofit, nonpartisan think tank that analyzes tax policies — Gardner wrote that “these initial findings appear to confirm the view that last year’s tax law was a gigantic missed opportunity for true corporate tax reform.”
Morrow echoes that sentiment: “Corporations haven’t been paying taxes for a really long time. This is how it’s always been, it’s that the new tax law didn’t fix it.”
Source: Mercury news
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