Why Amazon's UK Tax Bill Has Dropped 50% (bbc.com) 139
An anonymous reader quotes a report from BBC: Amazon has seen a 50% fall in the amount of UK corporation tax it paid last year, while recording a 54% increase in turnover for the same period. This snippet of news raised eyebrows this morning when it was revealed. So what's going on? Taxes are paid on profit not turnover. It paid lower taxes because it made lower profits. Last year it made 48 million British Pounds (BP) or ~$62 million U.S. dollars (USD) in profit -- this year it made only 24 million BP or ~$31 million USD so it paid 7 million BP (~$9 million USD) tax compared to 15 million BP (~$19 million USD). What is more interesting is WHY its profits were lower. Part of the reason is the way it pays its staff. Amazon UK Services is the division which runs the fulfillment centers which process, package and post deliveries to UK customers. It employs about 16,000 of the 24,000 people Amazon have in the UK. Each full-time employee gets given at least 1,000 BP (~$1,297 USD) worth of shares every year. They can't cash them in immediately -- they have to hold them for a period of between one and three years.
If Amazon's share price goes up in that time, those shares are worth more. Amazon's share price has indeed gone up over the past couple of years -- a lot. In fact, in the past two years the share price has nearly doubled, so 1,000 BP (~$1,297 USD) in shares granted in August 2015 are now worth nearly 2,000 BP (~$2,595 USD). Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue -- so profits are lower and so are the taxes on those profits.
If Amazon's share price goes up in that time, those shares are worth more. Amazon's share price has indeed gone up over the past couple of years -- a lot. In fact, in the past two years the share price has nearly doubled, so 1,000 BP (~$1,297 USD) in shares granted in August 2015 are now worth nearly 2,000 BP (~$2,595 USD). Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue -- so profits are lower and so are the taxes on those profits.
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Wow, that even already works now that the UK is still in the EU?
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Wow, that even already works now that the UK is still in the EU?
It's beginning to work great. The UK pound is down by 20% in the last couple of years [xe.com]and will probably fall below the value of the dollar in the near future. Yen parity will take a little longer after Brexit however. Spending, earnings, everything is down and falling. Including effective tax reciepts. No economy, no money. No money, no taxes. Living the dream!
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London bridge is falling down, falling down, falling down...
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Better go warn the people of Lake Havasu City, Arizona.
https://en.wikipedia.org/wiki/Lake_Havasu_City,_Arizona [wikipedia.org]
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The UK pound is down by 20% in the last couple of years
Sterling was probably overvalued and due for a correction even before the Brexit vote, though. While the referendum result triggered a sharp drop and further falls over the following weeks, the pound has since recovered some of those losses and it now sits roughly in line with the longer term trend against the US dollar. Some economists had been arguing that it should be closer to its current level anyway, so we shouldn't necessarily expect it to continue falling or take any more sharp dives on account of B
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The loophole seems to be when the stock is taxed. It should be when it is given, not when it is cashed. That's like handing someone cash but only paying employer tax when the employee gets around to spending it.
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Usually the stock would be taxed when the employee receives it, because the company is giving the employee something that's worth money, but there's an exemption that Amazon are (presumably) making use of here. If the shares are worth less than £X and it's been more than Y years since the employee last benefited from this exemption, no tax is due when the employee receives the shares. (I'm too lazy to look up the values of X and Y, but they're not huge.) The aim is to encourage the spread of share own
Value of unexercised grants? (Score:2)
If employees are granted options to purchase stock at current value at some future date following, say 3-5 year vesting period, the employee has not received anything of value. After the vesting period, the employee can choose to exercise the option and buy the stock from the company at the promised value. In US tax system this triggers an income tax on the option value. If the employee sells the stocks (not uncommon in this deal, a buy/sell agreement), he or she will also then face a short-term capital gai
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It works more or less like that in the UK too. If the company grants the employee share options rather than actual shares, the employee doesn't owe any tax when he receives them.
The article says Amazon is giving their employees shares, not share options, but then says the employees can't benefit from the shares for one to three years. That suggests they're really getting share options, but the reporter doesn't understand the difference, or doesn't feel like trying to explain it. (I've been given share optio
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The article says Amazon is giving their employees shares, not share options, but then says the employees can't benefit from the shares for one to three years. That suggests they're really getting share options, but the reporter doesn't understand the difference, or doesn't feel like trying to explain it. (I've been given share options a few times, and have always struggled to explain them to anyone who hasn't worked for a company that gave them.)
Not necessarily, there are various ways of doing this, and my employer does in fact provide me with un-vested shares, not options. This is preferable to options in that regardless of if the stock goes up, down, or stays flat, I still get something (the new share value), additionally I get dividends on them even before they vest, whereas with options you'd get nothing until they vest, and even then only if the shares went up.
I have also received options in the past, but those are given out as one time specia
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Taxing the stock when it is given means an employee gets a tax bill but doesn't necessarily have any real money to pay it with. That sort of arrangement often creates perverse incentives, and isn't normally how taxes on capital gains work.
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Re:Simple explanation for this (Score:5, Insightful)
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Are they worth paying if they end up breaking your society apart?
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Because nobody makes a profit = communism = fall of society
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Communism isn't all or nothing. The most successful countries on the planet have publicly funded healthcare, that doesn't suddenly make them Cuba or the USSR.
Or is your argument that anything that Cuba has must be bad, simply because it's Cuba? In that case I recommend you stop eating food, because communist countries have that too.
Re:Simple explanation for this (Score:4, Informative)
Do the social democracies like Germany or Norway invent amazing new technologies like the Internet or smartphones? No, that was the US,
Germany invented the first programmable computer, I'd like to see how your internet and smartphones would have worked without that. Also the smartcard, the first oscilloscope, SMS for cell phones, morphine, x-rays, etc. Norway's inventions include things like Object Oriented Programming.
Do your social democracies like the UK have the best health outcomes? No, that's the US - be chance of survival for infants, cancer, heart disease, HIV...
Despite the US spending nearly three times the amount per capita on health care as the UK (and even ignoring private money the US government spends almost 25% more than the UK on health care), the average life expectancy in the UK is 3 years longer than in the US, all cause mortality in the UK is lower than in the US, and specifically the UK has lower mortality rates for cancer and heart disease, and has half the infant mortality rate of the US. (I didn't immediately see figures for HIV)
Do you social democracies like France or Sweden perform huge amounts of medical R&D? No, that's the US, which provides half of the entire world's medical R&D.
Sweden spends more money per capita on medical research than the US. And in per-capita spending, the US is behind even such countries as Signapore and South Korea.
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Thanks for helping to make my point
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Total UK tax revenue in 2016: 716 billion £ [wikipedia.org]
Total cost of UK's EU membership after discounting the money you go back in different types of programs and payments: 8,6 billion £ [fullfact.org], meaning roughly 1,2 % of the total tax revenue or 131 pounds per person per year.
If you think your taxes are going to go down after this
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Amazon has learned how to utilize the UK Tax system.
The problem with progressive taxing, is that the rich have resources to to move their money around so they appear poor to the taxing institution. The poor don't have such resources so they look like they are doing well enough be taxed at a bracket they actually hurts them.
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this is true in general, but Amazon is special,
they really keep their prices as low as possible and earnings as low as possible because they would rather earn 0% profit or even loose money some years, but increase market share by 10%+ than earn few billions but increase market share only 1%
every country taxes profits, not revenue, if you or company earn 0% (or loose money) there is nothing to tax (in some countries they even give you money back/negative tax)
so company that tries to take as much your money a
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That's not a problem with progressive taxation, it's a problem with complicated taxation rules.
The rules are designed by the rich to make it easy for the rich to circumvent. If the tax code wasn't thousands of pages long, the odds are the loopholes wouldn't exist.
Clarification question (Score:4, Interesting)
The compensation relevant for taxes is the 1000 GBP the stock is worth when Amazon gives it and not its value at the end, right?
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expenses can be deducted from revenue
But in this case, the expense is not fixed.
case 1) If AMZN buys/allocates 1,000 BP shares at time T for the employee and holds them in a safe somewhere, it's expense is 1,000 BP. AMZN deducts 1,000 BP from revenue as expense.
case 2) AMZN buys 2,000 BP shares at time T+2 years. AMZN deducts 2,000 BP from revenue as expense.
case 3) AMZN buys 1,000 BP shares at time T. AMZN deducts 2,000 BP from revenue as expense for year T+2years.
Case 3 is obviously fraudulent.
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case 3) is - as you said - obviously fraudulent, I would never believe Amazon would be stupid enough to attempt something like this.
case 2), while not actually fraudulent in relation to the tax thing, is highly unlikely I guess, since the shares "given" to the employees on a certain date would have to exist "at this point in time", otherwise it would be kind of fraudulent towrds the the employee (unless the summary somehow was not accurate concerning the shares)
=> I think we need to a
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Now there's nothing more to squabble about...
except the evil US online retailer that's cheatin' us, mate!
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I'm not sure that Amazon buys any stock for this - I'm pretty sure they just print it, diluting the value for everyone else. It's not really a cost to Amazon's business at all.
Really business taxes on profit should be on the high side and businesses should be encouraged to minimise their taxes/profits by paying their workers more or investing in infrastructure
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The article didn't make a whole load of sense to me. Amazon can give away £1000 of shares and the employess don't pay tax as long as they hold them for 5 years. https://www.gov.uk/tax-employe... [www.gov.uk]
The employee may end up paying capital gains tax on the sale if they end up with a pile of shares and sell them in one tax year. The first £11 000 or so of profit is free, so unlikely to be an issue for most people.
But Amazon have found a neat trick to avoid corporation tax which is actually paying your e
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It would depend on British law. In the US you have to exercise the option and turn it into actual stock before you have a tax liability. It's possible that British law just includes stock options are part of your overall compensation and uses some nominal market value to report it. It does seem weird to me to include non-vested options in a dynamic financial instrument as "compensation" even if it is used to supplement actual money.
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From the article "Each full-time employee gets given at least £1,000 worth of shares every year." Those are not stock option, the option to buy shares some time in the future at a defined stock option price, lasting the life of the stock option. They are being paid in shares as a bonus, as it can not be included in the normal award rate, as the stock has no real defined value until it is actually traded. It is questionable, that Amazon being allowed to tax deduct the share payment, is questionab
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This whole thing is strange because it mentions that they have to vest for two or three years before cashing out. It sounds like Amazon is both taking advantage of share dilution and a loop-hole for tax-free payments via stock. It ends up working out for the employee because they don't pay taxes on the "income". I guess in the US that would probably be taxed at 15% under capital gains but IANATL.
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Amazon is making use of an existing loop hole purposefully created by corrupt banks, the monarchy and the UK government. The tax cheating does not really count for the $1000 share issues but for a multi-million dollar share issue to insiders, a tax deduction without any taxes being paid ever, except on the dividend those shares earn, well, as long as they are not transferred to a tax haven location and than the dividend is no longer taxable. So not much to do with Amazon and more to do with high level insti
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but for a multi-million dollar share issue to insiders, a tax deduction without any taxes being paid ever, except on the dividend those shares earn,
I think you assume stuff is happening that isn't. Taxes are paid on the stock gift amount as income, only the increases are taxed as capital gains, or decreases as losses, from the legally defined time of issuance. Individuals pay income taxes on that compensation, not corporations.
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You have to have a capital gain before you can tax it, so zero taxes are paid until the shares are sold, yet they earn the equivalent of bank interest, hmmm, something definitely suss going on their, I wonder who it benefits, the poor earning a pittance on bank interest or the rich earning millions as off shored tax haven dividends, paying for their luxury holidays basically with the taxes of the poor.
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Re: Clarification question (Score:3)
I don't know how UK law works, or whether Amazon UK did something like this (assuming it is possible), but something like this is common in US tech companies. It's called a stock option grant.
A stock option is a contract that one party fulfills by selling some number of shares of the stock to the other other party for a given price. For a typical tech employee, this takes the form of an incentive stock option, where the employee usually has to stay employed (perhaps full-time) in good status (rather than
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In the UK the companies gve actual shares, not options.
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Interesting. In the US, that would count as ordinary income in the year the stock was given; the tax effects make it an uncommon practice. We don't have anything like the £3,600 exclusion that is mentioned in the article. US companies also (as far as I know) can't restrict how long the employee works for the company before selling an actual share that has already been granted. Perhaps the Amazon UK write-off is related to how they structure that incentive scheme.
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Interesting. In the US, that would count as ordinary income in the year the stock was given; the tax effects make it an uncommon practice
False, on both counts.
In the US, such stock grants are called Restricted Stock Units [investopedia.com] (RSUs), and they're actually quite common in large tech companies, and in some other parts of industry. My employer (Google) grants them, and I get them; in fact they constitute about a third of my income.
The way it works is that the grants vest on some schedule. For example, each year after my performance review I'm given another bloc of RSUs, on a four-year vesting schedule. Each month, 1/48th of each grant vests. At
Re: Clarification question (Score:2)
I said "given", not granted. Until your option or stock vests, ask you own is a piece of paper.
And RSUs are uncommon in general. They are recently popular in Sili Valley, but otherwise about as common as defined-benefit pensions in private companies.
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I said "given", not granted. Until your option or stock vests, ask you own is a piece of paper.
You should use unambiguous language.
And RSUs are uncommon in general. They are recently popular in Sili Valley, but otherwise about as common as defined-benefit pensions in private companies.
I've had them at three companies, only one of which is in SV, or has any relation to SV.
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Not in the UK, and we have no £3,600 exclusion, however I do get given shares, and I am not allowed to sell them before the end of the year (I don't think it's contingent on how long I work for the company, just that I have to hold them for a specific length of time before selling)
Re: Clarification question (Score:2)
So the BBC's business editor was wrong when he wrote "HMRC rules allow employees to receive £3,600 worth of shares from their employer tax free every year"?
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I think you missed the first bit of my comment that specified I wasn't in the UK.
Re: Clarification question (Score:2)
No, I just read your sentence fragment as meaning "[That's not so] in the UK", because my comment was rather narrowly about the UK vs US tax treatments of this kind of compensation.
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Not true. It can be either. I have been given both in the past.
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The compensation relevant for taxes is the 1000 GBP the stock is worth when Amazon gives it and not its value at the end, right?
all speculation here....Its possible that it does not count as income until the employee actually sells it, which would simply be a deferral. Taxes received would be higher or lower as well according to the stock price at the time of sale. It would get complicated if the employee could claim it as capital gains, but I don't think that would be allowed (don't have a clue about UK capital gains rules though)
what if the stock goes down? (Score:1)
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So, if the stock goes down, will Amazon have to pay higher taxes? That doesn't make much sense..
No. Amazon's taxes should not change no matter what the stock does, they deduct that expense when they pay the employee just like they deduct any salary or bonus. If it goes up the employee pays more taxes on it when they cash it out.
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So, if the stock goes down, will Amazon have to pay higher taxes? That doesn't make much sense..
No. Amazon's taxes should not change no matter what the stock does, they deduct that expense when they pay the employee just like they deduct any salary or bonus. If it goes up the employee pays more taxes on it when they cash it out.
Not if UK income tax law works like US income tax law (and the article implies it does). Such stock grants are not considered income to the employee or an expense to the company until they vest, which happens well after the grant and on some specific schedule.
In the US, these are called Restricted Stock Units. http://www.investopedia.com/te... [investopedia.com]
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It makes sense if Amazon holds the stock and then gives it to the employee, losing an asset.
It doesn't make sense if Amazon issues new stock, since that creates an asset (and dilutes the share value). That new asset is income to Amazon, then is handed over and is an expense; if it's issued directly to the employee, then the value of that income-expense is net-zero and it shouldn't get them a tax discount.
Capital gains (Score:5, Interesting)
So when employees cash out they will have to pay tax. In the UK once they convert assets to fiat they will have to pay 20%
The interesting this about this is that you can earn A LOT more than than the usual 20% tax bracket and still pay 20%
The company is essentially pushing tax deductions on the employee with the employee seeing this a great deal to pay less tax as well...maybe even make profit as stock appreciates. It all falls apart however when share price goes sharply down and people may end up earning less than they thought they will AND pay tax on it when they cash out.
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Capital gains has thresholds too, there's an allowance of 10k or so with 0% tax, So lower paid individuals paid this way, who don't have lots of other shares or other appreciating assets sold in the same year, might do quite well out of it.
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Not true. You only pay capital gains if your _profit_ (not the total value of shares but how much they have grown since you acquired them) is over £10000 or so.
So majority of employees who get £1000 won't pay capital gains tax at all.
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So when employees cash out they will have to pay tax. In the UK once they convert assets to fiat they will have to pay 20%
FWIW, if you're right about UK law, this works differently in the US. Stock grants are considered regular income to the employee (and an expense to the company) at the point in time when they vest. At time of vesting, a fair market value (FMV) is assessed (usually the stock price at closing on the day before the vesting date, IIRC), and that amount of money is counted as part of the employee's gross income. If the employee holds onto the stock for another year before selling, and the stock price goes up, th
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Everyone focuses on this side of capital gains taxes, never the flip side. I think the flip side is the more important one.
If you're in a lower tax bracket, you still pay 20% capital gains tax. This has the effect of discouraging middle- and low-income people from investing in stocks. And since stocks on average have a much higher rate of return than interest in a bank savings account
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Err passing it on to the -- s/employer/employee. And a minor addition: The point being companies are paying LESS tax, people are paying MORE tax, and they don't get that it's basically them getting fleeced. It's as if collecting tax will suddenly stop Amazon, Microsoft, Google, and whomever else from operating in the UK entirely. Cowards.
The people are only paying more tax because they are making more money. That's how it works. Amazon is making less profit, paying employees more, and paying less taxes. Employees are making more, how much more depends on the value of stock when they sell it. I honestly think some people here would rather have Amazon not pay these bonuses to employees, and make more profit just so they can pay more taxes.
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> Amazon is making less profit, paying employees more, and paying less taxes. Really? http://www.visualcapitalist.co... [visualcapitalist.com] Seems like Amazon is making a shitload more money than last year to me.
Don't confuse market cap, overall revenue, and UK profits with each other.
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That's how capital gains work. Say I pay 1000 GBP for stock, or someone buys it for me at that price. That becomes my "cost basis" for the stock. The market value of that stock increases to 2000 GBP. I have 1000 GBP of capital gains, and if I sell at that price, I pay taxes on that gain. The company doesn't owe taxes on that gain be
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Firstly, any stock awarded to an employee in the UK is immediately given a "Fair Market Value" evaluation -- again that's ***on award***. So, if you get given 1,000 GBP worth of stock tomorrow, and you pay nothing for it, the UK will tax you at whatever your income rate is for that 1000 GBP.
Are you sure? The US does it differently, and in a way that is much fairer and seems more consistent with the article.
In the US, the FMV is assigned at vesting, not at date of grant. This is much better, because at vesting some of the shares can be (and generally are) automatically sold and withheld to cover income taxes, reducing the chance that the employee gets ambushed with a huge tax bill.
Also, the structure you describe seems very weird when lined up with the article, because apparently (per you),
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BP? (Score:5, Informative)
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Eh.... I'm just surprised that the editor/submitter took the time to fix the UTF errors even if they didn't get the proper abbreviation in there. At least it's not filled with instances of £
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Just say NO to Amazon (Score:2, Insightful)
and buy from UK Based retailers that pay proper tax.
If you don't then there won't be any retailers left and Amazon will have won.
USA (Score:2)
Same for USA! I like to visit local stores and buy if the prices are right for the products they have in stock. Even pricematching!
Very ironic, very satirical (Score:2, Interesting)
The employees are rewarded with shares that keep increasing in value. Why are the shares increasing in value? Because Amazon's expenses are so low. Why are Amazon's expenses so low? Because it skimps on employee salaries. How does it manage that? By giving the employees shares.
Ponzi scheme
n noun a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
ORIGIN
In other words (Score:5, Insightful)
"Hey, let's give corporations tax deductions for the cost of stocks they give to their CEOs!"
"Jolly good idea! CEOs can barely afford a third vacation house and a private jet. They need more shares of stock!"
"WTF? Why are we giving corporations tax deductions for the cost of stocks given to the peasants? This is an outrage!"
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Or even better:
"Hey, Amazon and other companies pay crap salaries and have crap benefits; their employees even live in tents in the office park."
...time passes...
"Hey Amazon is compensating their employees better and they pay lower corporate taxes because of it; the need to stop that right now!"
(BTW, in the entire civilized world employee compensation is a normal business expense and pretty much no matter how you compensate the employee, the business gets to deduct the cost of salary and
It's GBP, not BP (Score:2)
The ISO code for British pounds is GBP, not BP.