It's far more nuanced than that.
If you do the work but undervalue it, it's likely tax fraud.
If you do the work but overvalue it, it's likely investor fraud.
Even if you fairly value the work it still might be investor fraud. The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
> If you do the work but undervalue it, it's likely tax fraud.
A company can value it's services as it chooses. If the work is performed for $1 or $5000 the government doesn't get a say in that.
> you do the work but overvalue it, it's likely investor fraud.
Quite possibly. Assuming this was done with the intention of misrepresenting your revenue and gaining investment.
>The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
Vendors are chosen all the time because of their willingness to accept specific payment terms and a whole bunch of non-merit pipelines via family, via golf course deals etc.
What if you're getting paid in landscaping?
As an individual interestingly it does matter because services received for free are considered taxable income (but businesses are not taxed on their income).
Business are taxed on their net income but many jurisdictions tax businesses on their gross revenue as well (look up GRT and GET).
Investor fraud is usually brought as a civil case and takes a balance of evidence approach.
Since enforcement is stochastic and rare these practices are pretty common. The freedom to do ‘whatever’ is really dependent on the discretion of the government and investors. Most companies can and do fly under the radar but have to be careful not to piss off the wrong people.
I did have to look it up, I didn’t know that the US was different in this way. I did have the California tax authority make a mistake and take money directly out of my account and there didn’t appear to be a way to fight it. It wasn’t enough to be worth hiring a lawyer over so I let it go but it didn’t give me much faith in the governance of California, very Kafkaesque.
CA FTB does not take money out of your account unless you have explicitly authorized it to do so and it definitely does not do so automatically. It only pulls specifically authorized amounts when specifically authorized to do so unless you have a garnishment order issued by a court. (I deal with the CA FTB on a daily basis.)
You're also wrong about most other countries as well, with the exception of France.
It was a vehicle registration issue for a car I had sold 10 years earlier, it got a parking ticket in CA and they used that as evidence I still had the car and owed registration fees. I had evidence the car was sold and had changed title many times since then before the parking ticket but they wouldn’t accept that. I didn’t go to court over this and the money disappeared from my account, I did get a phone call telling me what happened. I had not received any notice prior. As mentioned I’m sure I could have gotten a lawyer for this but legal fees would have exceeded the amount lost, perhaps in the future when I have a lawyer on retainer.
It isn’t that black and white. If you are being paid in cash, you can charge whatever you want, that is true. But if you are exchanging goods or services for other goods or services, the government is going to care how you value that transaction.
That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.
For example giving huge discounts below cost only to family members, which is more or less like paying them money without paying taxes for it.
When two companies undervalue the services that they offer to each other, they pay lower taxes. This is the illegal part.
Businesses are taxed on their net income, not get gross.
Exactly. But it doesn't have to be used in this way.
Where have you seen this?
When I was doing consulting I could charge whatever rate I wanted. Usually around $200 but went up to $500 and down to $25 when doing a favor. Same type of work.
At the enterprise level this is even more common. Nothing has a fixed price and the same service can be sold at wildly different prices to different customers based on endless variables.
Sure, if you're charging cash. If you charge $25 and that's all you get, it's worth $25 by definition; being bad at business is allowed.
But if you're charging $25 and you're getting $25 and a favor, that work you're doing is actually worth more than $25 and the IRS expects you to declare the value of that favor as income. If you normally charge $500 but sometimes you charge $25 the IRS might look deeper to see what else you're getting in compensation.
You're highly likely to get away without declaring that favor, and there are certainly legal ways to avoid it too -- gifts, training/education, et cetera, but at it's base level it's income.
Whether it you think it should or not depends on your personal preferences, but in practice the government does get a say in anything that it deems to be an undue way to reduce your taxes.
Barter would be much more common if it was a legal way of avoiding taxes.
Investor fraud is much more likely if neither company actually needs each other's widgets and it's just to pump revenue.
Which means, "If the work is performed for $1 or $5000 the government doesn't get a say in that." --- it absolutely does, in the way of requiring the person getting a "$1 service" to calculate their tax as if they got $5000.
Probably not, it's just giving a discount. Nothing wrong with that. Many companies sell goods or services below cost. To gain other benefits like market share, or new customers. Why not do it to get something else essential from another company?
> If you do the work but overvalue it, it's likely investor fraud
It probably depends on the situation. If it's mainly used to inflate sales figures and scam investors, then probably yes. If it's just a "good deal" then probably not.
Discounting and undervaluing have differences, one of them is transparency. As you say, many companies offer discounts and don’t hide that. People who commit tax fraud usually aren’t transparent about their “discounts”.
It's basically saying they give you as much discount as you need to be able to afford the service. And those discounts are very secret by design.
If I want to sell my SaaS to small primary schools for 90% off, I should be able to do that.
Probably.
Let’s discuss.
Who protects the consumer when they have been gutted of any power?
It amazes me investors or the sec will put up with it
[0] https://en.wikipedia.org/wiki/Barter
Re investors: please list at least one credible source supporting this assertion.
Any lie, misleading omission or misleading half-truth is investor fraud.
If a firm can’t afford services cash, that’s part of the merit of the choice.
This is not compelling.
OTOH, most work is not "unique, innovative and visionary" and has a relatively transparent fair market value.