Elon Musk’s tax bill is 11 billion USD, but his Tesla company will not have to pay any

Tram Ho

In its annual financial report to the Securities and Exchange Commission, Tesla said that its US operations lost $130 million and that all of the company’s pre-tax profits – more than $6 billion – came from operations abroad. outside, although 45% of the company’s revenue comes from the US market.

Although Tesla says the tax it has to pay overseas is up to $839 million, the tax bill in the state where the company is based is just $9 million, and the federal tax bill is zero.

“This defies common sense but is not unusual for corporate tax practice in the US,” said Martin Sullivan, chief economist at Tax Analysts and a corporate tax expert in the US.

Bypassing the law by transferring profits abroad

In 2021, Tesla recorded a net income of $5.5 billion but had a loss of $130 million. Sullivan believes that this loss in Tesla’s US business is a common occurrence with US multinational corporations. In it, they structure their operations so that overseas branches are the only income reporting units, while the US headquarters has little or no taxable income.

For example, a company may assign its intellectual property to one of those foreign legal entities and charge a fee for the use of the intellectual property to the US entity. As a result, operating abroad is often profitable, while the US company – bearing the “cost” of the entire operation – often reports losses or low profits.

“This is an American multinational problem. It’s a very common thing and it’s hardly illegal,” said Sullivan.

A recent U.S. Treasury Department report found that 61% of U.S. multinationals’ overseas profits are reported in seven countries: Bermuda, Caymans, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland. – places often called “tax havens”. It’s a reality that many newly elected officials and the administration of President Joe Biden are committed to addressing.

“Tesla and other corporate giants have long used scams and loopholes to avoid paying taxes, which must be stopped. Democrats are working to end the tax cuts. Republicans with corporations that move profits and jobs abroad,” said Sen. Elizabeth Warren, a frequent critic of Musk on tax issues.

However, the US Congress has so far taken no action to prevent this situation. The company also pointed out that Tesla’s financial statements do not accurately state its operations abroad, such as the countries in which the company is profitable.

The possibility that Tesla will not pay taxes in the US soon

If you look at the large financial support for the electric car industry from the government that Tesla has long received, the company does not even need to use the above “cover” to reduce profits in the US to avoid having to taxpayer. Instead, this firm can fully take advantage of large losses to protect its current income.

This is again a common practice for loss-making businesses, analysts point out: Deduct past losses on future tax bills.

Many big tech companies, like Amazon, which lost money years before they started to turn a profit, used this loophole. As a result, many companies with financial problems – like US airlines, may not have to pay taxes for many more years because they have reported billions of dollars in losses during the Covid-19 pandemic, despite they get billions of dollars in federal help.

Similarly, Tesla’s rivals General Motors (GM) and Chrysler each lost so big that they needed a government bailout. However, when profits return, no company pays taxes

Tesla posted losses for more than a decade before starting to turn a net profit in 2020. These are real losses because the costs of developing and producing electric vehicles in the early days were much larger than sales. This company accepts losses for many years with the expectation that it will be profitable in the future as demand increases and costs decrease. Along with this, Tesla also accumulated a large loss to use on future tax bills.

However, Tesla is quite optimistic about its future, expecting 50% year-over-year sales growth.

Huge bill of Tesla boss

In contrast to the company, the Tesla boss faces a huge tax bill. Musk once said he used a “trick” to pay little or no federal income tax.

A report from ProPublica shows that in 2018, Musk and many other Americans near the top of the richest people in the world paid no income tax. In Musk’s case, he does not receive a salary from Tesla, but only receives the option to buy Tesla shares (at a price much lower than the market price) as a reward based on the company’s operating results and the price of Tesla shares. share.

Musk, currently the richest person in the world, has a call option on 22.9 million Tesla shares that will expire in August 2022. As a result, he started using options to buy shares late last year.

In total, he spent $142.6 million to buy $23.6 billion worth of shares. Accordingly, his taxable income is $23.5 billion in 2021 and the federal income tax rate is about 41%.

Musk also had to sell a small portion of the stock he held in the early days, resulting in $5.8 billion in taxable income and a lower income tax rate.

Collectively, this billionaire could have to pay nearly 11 billion USD in federal taxes – a number he mentioned in a recent Twitter post.

According to the newly released financial report, Musk has received an additional 8.4 million stock options, bringing his total unused options to 67.5 million. If he once again pays zero federal taxes, chances are Musk’s tax bill and Tesla’s tax bill will be the same for the next five years.

Reference: CNN

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