Why Elon Musk pays 11 billion dollars in taxes but Tesla zero in the United States

In the United States, Elon Musk assures that he will have to settle a tax bill of 11 billion dollars after having exercised options on his shares.

Elon Musk will have to pay the biggest tax bill in US history. It was the boss of Tesla who assured him at the end of last December, specifying on Twitter that the amount of his taxes would amount to 11 billion dollars for the year 2021.

The richest man in the world who does not pay himself any salary had until now paid almost no tax in view of his immense fortune estimated by Bloomberg over $230 billion. But by exercising options on millions of shares of Tesla (which allow him to obtain shares at a preferential rate before reselling them at market price if he exercises his option) and by selling elsewhere for almost 7 billion shares in 2021, Elon Musk was caught by the US tax administration.

By exercising his options, Musk is indeed taxed as if it were income, i.e. up to 40.8% on the value of the newly acquired shares. And by selling his shares, he is subject to a 20% rate of capital tax. According to the calculations of CNN Businessthe billionaire’s federal tax bill is actually expected to be around $11 billion.

Tesla in loss in the United States?

What is more surprising is that at the same time, his company Tesla – valued at 930 billion dollars on the stock market – should not pay any federal tax for the year 2021.

However, the electric car company has just recorded its best year in history, notably with a net profit of 5.5 billion dollars and an adjusted profit of 7.6 billion dollars.

But as noted CNN BusinessTesla specifies in a footnote of its recent financial document sent to the SEC, the policeman of the American Stock Exchange, that its activity in the United States is loss-making. While Tesla makes 45% of its sales in its territory, the company declares losses of 130 million dollars there. All of its profits would come from its overseas operations.

Tesla claims to have paid $839 million in foreign taxes in 2021, $9 million in state taxes in the United States and zero dollars in federal corporate taxes. Amazing then that the company achieved in 2021 a turnover of 53.8 billion dollars, an increase of more than 70%!

“It defies common sense, but it doesn’t defy the US tax code,” said Martin Sullivan, chief economist for Tax Analysts, an expert on US corporate tax practices on CNN.

Like the financial arrangements of the net giants which make sure in Europe to be in deficit in the countries where the profits are the most taxed, Tesla would practice the same tax optimization in the United States.

The most common example is charging fees for the use of intellectual property to the subsidiary in order to make it loss-making.

“It’s the thing of American multinationals, it’s very common, believes Martin Sullivan. It’s almost professional misconduct not to do it.”

The SEC filing does not specify Tesla’s financial setup or even in which country the company reports most of the profits actually made in the United States.

Beneficiary thanks to China?

If at least she realizes it. According to some analysts, Tesla’s 130 million loss in the United States could well be real, despite the surge in vehicle sales across the Atlantic.

This is what Gordon Johnson of GLJ Research thinks in particular, recalling that the manufacturer was losing money before it began in 2019 to produce vehicles in China at its Shanghai factory.

“I think it’s a huge deal,” he told CNN. “They actually said they don’t plan to use net loss carryforwards. That means their US operations are losing money. is a point we’ve made over and over again. Outside of China, Tesla is losing money.”

Tesla has an accounting leverage in the United States that allows it to carry forward its (significant) past losses over several years in order to reduce its current taxable profit. However, Tesla specifies in its accounting document that it did not plan to carry forward its past net losses. In other words, if the group does not need to use this possibility offered to it… it is because it is still losing money in the United States.

Tesla declined to comment on these various allegations.

Frederic Bianchi

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