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The New Tax Rules in the US Could See Crypto Companies Exiting the Country En Masse. 

by BlockNews Team
April 12, 2023
in BUSINESS, CRYPTO, MEDIA, POLITICS
Reading Time: 3 mins read
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  • The newly implemented R&D laws are more complicated than they seem. 
  • Crypto companies will distance themselves from the US over new laws. 
  • A large percentage of the US software development industry will leave the country over new laws. 

The U.S. has implemented new R&D laws, and it has a broad language that implies that any software development must be reduced for over five years if the development is one that took place in the United States, or it could be over 15 years if the development took place outside the country and while in hindsight, this may not sound as bad and in the surface in could imply that it’d help create more tech jobs in the United States. 

However, it, unfortunately, will play out differently; many countries have better-suited R&D credits than the U.S. 

A large part of the United States’ software development will leave the country and make its way to countries like the United Kingdom, where the rules are much simpler and lucrative. Tax-smart companies would use their U.S. beaches for marketing and sales.

A company that loses over a million dollars but has a debt of over $300,000 in taxes would have roughly $2.5 million in income. In 2022, they would have spent $1.5 million to build their software and $1 million for other costs, meaning they had a negative cash flow totaling $1 million. 

Furthermore, because the development of $1.5 million was implemented by a team possibly located in a country like India, they would only see $50,000 from the software development side, which would leave a $1,050,000 deduction to offset the $2.5 million of income from the year, which would mean they owe tax on a $1.450,000 network or a bankruptcy case of $304,500 in tax.

The tax will not stop companies from receiving all the deduction benefits but will last a few years. It will put one of the proponents in front of a company that lost a million operations but with a debt of $300,000 in taxes to see if the results are the same. 

The major tech layoffs that have taken place recently could be a result of the rule change in the tax laws, and it would take more sense for restructuring so that subsidiaries outside the U.S. are made to do R&D and for blockchain, crypto, and NFT companies, they already have to deal with the laws of the Securities and Exchange Commission and with the new R&D laws, they would decide to distance themselves from the U.S. now.

Conclusion

The new R&D law looks straightforward on the surface, but when it is looked into, the way it looks out to be is not how it will eventually play out, hence why crypto companies will find a way to distance themselves from it. 

Tags: cryptoCrypto CompaniesCrypto LawsCrypto RegulationPoliticsUS
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