Exploiting a real corporate loophole :)

[PinoX7]

I decided to test exploiting a corporate loophole which is fairly prevalent in US companies. My experience from this comes from something that happened a few years ago, I ran a profitable mfg corporation that was purchased by a company that was owned by pvt equity firm. Very quickly they started to sabotage our company and I had no idea what was going on until about a year in, over the 2 years I was in this position our backlog multiplied x8 times and our office staff was cut to 1/4. We were actually on course to overtake our parent company very quickly, I made improvements to our systems daily and added 3 new top 10 accounts. Alas I did not understand what the plan was, pvt equity likes to play games and not really build a business, I will show how this loophole works at the corporate level, and it is a bit sad that it is more profitable than running a successful business.

Rule 1 - Never have more than 1 profitable company

If you have 3-4 healthy companies/subsidiaries that are profitable you are doing it wrong! Each of these companies is paying taxes, you are not taking advantage of accumulated losses.

Rule 2 - You need to be accumulating losses at as many companies as you can, the easiest way to do this in Capitalism Lab is through Advertising (there are several ways it is done IRL but it is not a function of the game *thank god*)

I personally like to have legacy media in each city, but this is even easier with an internet company. Basically you crank your advertising up to the max to your 'target' company which will be your one profitable firm, All your other firms doing this will take a loss, these losses are accumulated as a credit against future profits. After some time you can simply reverse the process by having company that has no accumulated losses start to advertise at ridiculous levels with the company that now has the accumulated losses.

You might be thinking to yourself, isn't this just moving money around? Are you actually making anything? The answer comes from the accumulated losses, if you have had the companies not doing this then neither would be accumulating losses and every $ of loss counts as a credit against future profits.

There is a few other ways to do this but as I said advertising is the easiest. This is also very easy to do between companies with 100% ownership as you can "reload" the company that is getting hit with these "losses" over and over either through a capital injection or special dividend. But you can also do it with companies you want to take over it may be a bit slower since you need to reload the company with the cash lost with either issuing new shares or a special dividend that is not 100% returned to the parent.

As you can see below, both my and my subsidiary have accumulated losses so we will never pay tax, even though we are both profitable companies, we just moved the money in a way to accumulate losses.





The way this was done IRL was with 'consultations'. I looked at our finance and we were being charged 100,000's of dollars weekly for consultations that never happened... We had people from the parent company show up (they flew in) and take us out to lunch and then fly home every month or so.. I didn't mind the nice dinner, but I didn't realize it was a way for them to make our company lose money purposefully.

[PinoX7]

I also forgot to mention one of the fringe benefits of this, you get to tell all the unprofitable companies you can't give raises or bonuses because you were not profitable. Corporations are a bit sneakier about it, however when I noticed exactly what they were doing because there was no way we were unprofitable after x8 our backlog and added 3 new major national accounts that we were unprofitable they let me go lol.

[anjali]

you cant really apply that in game, as there are plenty expenses not tax deductable... exactly those expenses that make you not pay taxes... and you cant really move the profits away to low tax or zero tax regions like you can IRL, if you have 2 billion accumulated losses in any of your companies, then you already paid taxes in another company for 2bn profits. i did play around with taxes ingame too and couldnt find a way to avoid them. all ya can do it try to move or set up the most profitable firms in tax heaven cities you control (i.e. 10% corporate tax city)

IRL after an US corporation and a european corporation made a deal for market shares the sold each other their subs (US corp aquired all US subs of the european corp and got now US market leader and the european corp aquired most of the US subs in europe to get european number 1) we were actually sold to the european corp and that was the end of easy peasy make your own shit and enjoy life, from this day onward we got a new director of ops which ordered us of course to tread the employees like shit, every employee to be kept on final written warning, and if it runs out and you have nothing to tease em with, be creative and make an obscure disciplinary with em just to renew the final written warning to make them feel shitty. and we were now the tax paying sub for a multinational owned by an investment fund as we had 15% corp tax compared to way over 30% up to 50% in other countries ... so they moved the profits to us to tax it at the low 15% flat rate. and we talking big numbers not just a few millions

the funny part ... total current assets about £54 billion ... and a negative networth of £ -12.5billion lol and still operating and a B credit rating
last year they aquired 20 billion more assets and 20 billion more loans and lost about 16 billion equity (looks like they pulled cash out before they sold it to another investment fund with nothing but debts). if a regular person would do this, you d face 10-20 years prison as that company is actually to file for bankruptcy

[anjali]

the only thing that just popped in my mind in regards to create accumulated losses in game, when thinking of new ways to inflate share amounts ...
... with the insurance company it might be possible to create tons of accumulated losses, but very time consuming to also buy with them shares of companies you merge into new corp shells and when you get those companies loose assets to the holding, the shares gonna plump over time, then buy up those shares the insurance company holds and re infuse the losses into the insurance company. that is currently the only way i see possible for tax evasion

[David]

I decided to test exploiting a corporate loophole which is fairly prevalent in US companies. My experience from this comes from something that happened a few years ago, I ran a profitable mfg corporation that was purchased by a company that was owned by pvt equity firm. Very quickly they started to sabotage our company and I had no idea what was going on until about a year in, over the 2 years I was in this position our backlog multiplied x8 times and our office staff was cut to 1/4. We were actually on course to overtake our parent company very quickly, I made improvements to our systems daily and added 3 new top 10 accounts. Alas I did not understand what the plan was, pvt equity likes to play games and not really build a business, I will show how this loophole works at the corporate level, and it is a bit sad that it is more profitable than running a successful business.

Very interesting to read! Just curious, are you using still running a business?

It would be good to see more people sharing their business experiences in the real world on this forum.