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Comment by tc313 | Hacker News Reader

How does acquiring a public company evade taxes?

Ha, I believe I know what the parent meant. Technically by not distributing a dividend that would otherwise been paid the government does not collect on the taxes that would have been due had the dividend been paid. I see how one could stretch this to consider it "evasion" As the government has not collected taxes by there are a zillion obvious offsets to factor in here that make this a bit of a silly point to make.

Taxes are paid by the corporation before they pay dividends. Paying dividends does not reduce a corporations tax liability.

Are acquisitions pre or post tax. I Don't know.

If they are pretax - You very well could evade taxes by spending excess money on acquisitions, allowing the stock price to increase based on future earnings. Then use step up capital gains when you die to avoid capital gains when transferring wealth to offspring.

Acquisitions are a capital asset and do not offset your tax liability. If a corporation earns $100 million and buys another company for $60 million, they still owe taxes on the full $100 million.

Correct - apologies for not being clear... if I own a business and receive a dividend, I pay taxes. So that same income was taxed first at the corporate level and second at the personal level. THe evasion - which I consider to be a stretch here - is that by not paying a dividend it becomes trapped in retained earnings and the government doesn't receive its second piece.

I'm not saying I agree with the view here but the point is technically correct. A $100 of profit for Apple in the us is taxed 40% at corporate level to become $60 and by the time it gets to me it is worth 32

Not paying a dividend isn't remotely tax evasion, IMO.

It's barely even tax avoidance...

You two are agreeing.

But it probably ought to

Silly indeed. Over the decades when Berkshire has elected to retain earnings vs distributing to shareholders, the capital has been compounded at Warren Buffett rates of return (and taxed when it hits the books as profit). If it were distributed the treasury would get a one-time dividend payment, but then the individual shareholders would be unlikely to compound that money at ~20%.

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