Comment by jotras
6 hours ago
Something nobody's talking about: OpenAI's losses might actually be attractive to certain investors from a tax perspective. Microsoft and other corporate investors can potentially use their share of OpenAI's operating losses to offset their own taxable income through partnership tax treatment. It's basically a tax-advantaged way to fund R&D - you get the loss deductions now while retaining upside optionality later. This is why the "cash burn = value destruction" framing misses the mark. For the right investor base, $10B in annual losses at OpenAI could be worth $2-3B in tax shields (depending on their bracket and how the structure works). That completely changes the return calculation. The real question isn't "can OpenAI justify its valuation" but rather "what's the blended tax rate of its investor base?" If you're sitting on a pile of profitable cloud revenue like Microsoft, suddenly OpenAI's burn rate starts looking like a pretty efficient way to minimize your tax bill while getting a free option on the AI leader. This also explains why big tech is so eager to invest at nosebleed valuations. They're not just betting on AI upside, they're getting immediate tax benefits that de-risk the whole thing.
> For the right investor base, $10B in annual losses at OpenAI could be worth $2-3B in tax shields (depending on their bracket and how the structure works). That completely changes the return calculation
I know nothing about finances at this level, so asking like a complete newbie: doesn't that just mean that instead of risking $10B they're risking $7-8B? It is a cheaper bet for sure, but doesn't look to me like a game changer when the range of the bet's outcome goes from 0 to 1000% or more.
It all depends on the actual numbers. Consider this simplified example: If you are offered a deal that requires you to lay down 10 billion today and it has a 5% chance to pay out 150 billion tomorrow, your accountants will tell you not to take this deal because your expected return is -2.5 billion. But if you can offset 3 billion in cost to the tax payer, your expected return suddenly becomes $500 million, making it a good deal that you should take every time.
I get that this example is simplified, but doesn’t the maths here change drastically when the 5% changes by even a few percentage points? The error bars on Openais chance of succes are obviously huge, so why would this be attractive to accountants?
If your accountants suggest that you take a single 5% chance deal, they probably skipped maths and statistics and you should fire them.
It's the dumb as rocks MBAs that will go head first into the 5% chance deal.
1 reply →
This applies to any spending Microsoft does. What does it have to do with OpenAI?
Also, classifying business expenses as "cost to the tax payer" seems less than useful, unless you are a proponent of simply taxing gross receipts. Which has its merits, but then the discussion is about taxing gross receipts versus income with at least some deductible expenses, not anything to do with OpenAI.
That just doesn't sound right. This kind of thought process only works if you think you are guaranteed more than that the next year. It only works in crony capitalism where your friends in government put money in your pockets. It's where we are right now, but definitely not something that is sustainable or something to aspire to.
>> For the right investor base, $10B in annual losses at OpenAI could be worth $2-3B in tax shields
So just a loss for governments, or in other words, socializing the losses.
OpenAIs losses are someone else's (taxed) earnings.
Hi, I'm here to hold the bag?
We really should have thought of this before becoming peasants.
2 replies →
You guys are getting bags?
Your pension fund, yes.
2 replies →
Private industry loses 10B. Governments mostly affected as they have less free money to extract.
Amazon already has not been paying any sort of income tax to the EU. There was a lawsuit in Belgium but Amazon has won that in late-2024 since they had a separate agreement in/with Luxembourg.
Speaking for EU, all big tech already not paying taxes one way or another, either using Dublin/Ireland (Google, Amazon, Microsoft, Meta, ...) and Luxembourg (Amazon & Microsoft as far as I can tell) to avoid such corporate/income taxes. Simply possible because all the earnings go back to the U.S. entity in terms of "IP rights".
The EU doesnt collect income/corporate tax, the individual countries do.
These big corps use holdings in low tax jurisdisctions like Ireland and Luxemburg, funnel all their EU subsidiaries’ revenues there and end up paying 0 tax in the individual EU countries.
This system is actually legal, EU lawmakers should pass laws to prevent this.
> Amazon already has not been paying any sort of income tax to the EU.
That should be expected, because
https://european-union.europa.eu/priorities-and-actions/acti...
> The EU does not have a direct role in collecting taxes or setting tax rates.
> There was a lawsuit in Belgium but Amazon has won that in late-2024 since they had a separate agreement in/with Luxembourg.
Dec 2023.
> Speaking for EU, all big tech already not paying taxes one way or another, either using Dublin/Ireland (Google, Amazon, Microsoft, Meta, ...) and Luxembourg (Amazon & Microsoft as far as I can tell) to avoid such corporate/income taxes. Simply possible because all the earnings go back to the U.S. entity in terms of "IP rights".
Ireland (due to pressure from EU) closed this in 2020. The amount of tax collected by Ireland quadrupled. See Figure 5 and 6 in link below.
https://budgetmodel.wharton.upenn.edu/issues/2024/10/14/the-...
> any sort of income tax to the EU.
Its clear that OP means "in the EU".
> Ireland (due to pressure from EU) closed this in 2020. The amount of tax collected by Ireland quadrupled. See Figure 5 and 6 in link below.
And Ireland fought against this tooth and nail. Yes, a country was fighting to have less income. All out of fear that the companies will leave the little tax heaven. Did they leave? No ...
> See Figure 5 and 6 in link below.
Figure 7 is also interesting if we look at the tax income increase and the outbound.
None of this is how taxes work.
> OpenAI's losses might actually be attractive to certain investors from a tax perspective.
OpenAI is anyways seeking Govt Bailout for "National Security" reasons. Wow, I earlier scoffed at "Privatize Profits, Socialize Losses", but this appears to now be Standard Operating Procedure in the U.S.
https://www.citizen.org/news/openais-request-for-massive-gov...
So the U.S. Taxpayer will effectively pay for it. And not just the U.S. Taxpayer - due to USD reserve currency status, increasing U.S. debt is effectively shared by the world. Make billionaires richer, make the middle class poor. Make the poor destitute. Make the destitute dead. (All USAID cuts)
There's already a lot that the US taxpayer is on the hook for that's a lot less valuable than a best on the next big thing in software, productivity, and warfare.
It shouldn't be the job of the US taxpayer to feed someone that doesn't want to work, study, or pass a drug test, and it absolutely shouldn't be the job of the US taxpayer to feed another country's citizens half a world away.
Hello, I'm British by birth.
That's pretty close to the story other Brits give themselves for why losing the empire was actually a good thing for the UK.
> It shouldn't be the job of the US taxpayer to feed someone that doesn't want to work, study, or pass a drug test
This would make sense if every person was given similar opportunities, like providing quality education to all of our youngest and making higher education a mission rather than a business as a starter.
As a society we move at the speed of the weakest among us, we only move forward when we start lifting and helping the weakest and most vulnerable.
You also need to realize that not doing that work is also cause for other taxpayer money to be spent elsewhere, such as spending an average of 37k $ per incarcerated person, and that ignores all the damage that criminal might've caused, all the additional police staffing and personal security that is needed to be spent outside prisons, etc.
Those are complex systems, are you sure it wouldn't be better to spend the same gargantuan amount of money that's spent on millions of inmates and fighting crime into fighting the causes that make many fall into that?
Again, those are complex, but closed systems and the argument of "we shouldn't spend on X" often ignores the cost of not spending on X.
1 reply →
> It shouldn't be the job of the US taxpayer to feed someone that doesn't want to work, study, or pass a drug test
What about someone who works and still can’t afford enough housing/food?
> shouldn't be the job of the US taxpayer to feed another country's citizens half a world away.
I mean where’s the profit in that, am i right?
The modern welfare state is the compromise reached by capitalist democracies to stave off communist revolutions. If you’re going to kill of the welfare part, be ready for the uprising part.
2 replies →
> The real question isn't "can OpenAI justify its valuation" but rather "what's the blended tax rate of its investor base?"
Was that an organic "it's not A, it's B" or synthetic?
Can you explain it in another way? What you are saying is that instead of loosing 100% they loose 70% and loosing 70% is somehow good? Or are you saying the risk adjusted returns are then 30% better on the downside than previously thought? Because if you are, I think people here are saying the risk is so high that it is a given they will fail.
Whilst that is an option, it wont cover the share price hit from the fallout, which would wipe out more than the debt as when the big domino falls, others will follow as the market panic shifts.
So kinda looking at a bank level run on tech companies if they go broke.
It’s hardly a free option, by your numbers it’d be a 20-30% discount.
Sure but if there's no moat would you rather pay 100% or 80% until the credits run out? You reap the 100% spend in the meantime. Not everyone even has the no moat discount.
Lmao this is ridiculous. If MSFT really wanted the tax benefits they should’ve just wholly acquired OAI long ago to acquire the financial synergy you speak of.