Internal trades within a company are not subject to income tax

A company (or Corporation) acts as a tax haven to its employees because internal collaboration is not subject to Income Tax... Whether it be direct instructions from a boss (to an employee) or competing favours (between employees), each company has an internal market of transactions which enables the organisation to be more productive. Income Tax is only paid only on the transaction between the employer and employee...

A self-employed individual must pay tax on each of his (or her) transactions with other businesses... For example if two self-employed individuals collaborate in selling a product by each specialising (exclusively) in a particular aspect of the construction (production), then each would be required to pay income tax (to the State) on the payment made to the other so that they are able to accomplish their particular task. When the product is completed, each person is able to sell the product on the open market (at a profit) and they must pay tax on this income as well.

If those two people joined together to form a company, they would not need to pay income tax on the transactions which occur between themselves, they would only pay tax on income generated by the company as a whole... They would only pay income tax on the profit, whereas before (as separate individuals) they would need to pay tax on the internal "turnover" transactions.

A corporation pays tax only on the income after expenses, which is "profit" but this does not take account of all the internal transactions that have taken place. If a self-employed person spends money on transactions with another small business, that expenditure is not tax deductible, unlike the (internal) expenses of the Corporation... only business expenses are tax-deductible (not personal spending) and it is presumed that all internal transactions within a large company are of (or similar to) this type. Even if a self-employed person is able to claim the tax back as "expenses" (a rebate, after keeping the receipt) the recipient must record the payment (at least, even if the expenses can be deducted from it) as income...

Normally, income tax is paid by those who have extracted money from the economy, not by those who have made no profit. Within a company, even though there is significant collaboration, because there is no "winner" (no internal prices, all by consent and approval) there is no tax to be paid.

In the same way, voluntary favours which do not attract a fee or payment, are not subject to taxation. We are able to "write off" charitable contributions as a tax-deductible expense and we are not expected to pay tax on something which has been given to us as a gift (except in certain situations when a person is close to death). But individuals outside of a large organisation do not collaborate in the same way (to the same extent) that those within an organisation do... because we are not being paid.


A person is more productive within a company than outside of it: they can (and do) earn more for their employer than their salary and their salary is more than they could otherwise earn outside of the company... Being a part of a company gives the employee access to a market of transactions which enables them to trade more efficiently (even after paying the price of having an employer; entering into a hierarchy). Because the employee will not pay an outsider to assist the company (unless they want them to help them out, in a situation which is not known to the boss, for example to pay to replace a damaged machine which the boss does not know about and the employee is responsible for...) only the boss will pay an outsider to help the firm. All transactions within the firm are to help the boss, even transactions between subordinates are to assist each-other in helping the boss. The Corporation offers efficiencies because teamwork is rewarded due to (the) economies of scale.

Two people within a company will (instinctively?) help each other (as part of a team, or only because they have been asked to do so by their boss, not by an equivalent employee?) whereas they might not do so in the "outside" world... They are being paid for their on-going loyalty and obedience, not for (the accomplishment of) a specific task.

An employee is not being paid to run the company (to be a proxy "boss"), because if they could do that they would do it alone. An employee is being paid because they can be exploited... Work for a company is different to (less agreeable than) private-sector contracts between equals, because a salary pays for an on-going commitment, it does not pay for a specific task. The employee is a "wage slave" from whom the employer can extract even greater value than that is given by the employee (by exploiting their disadvantages). The employer has the advantage (resulting from Government favours perhaps?) that they are able to make more money from the employee than they are (otherwise, on their own) able to make for themselves...

Friday 17 April 2009


Update regarding "wage slavery"... I reject this term, unless to the extent that a corporation has received favours from the State or similar coercive monopoly... Unless it can be shown that a person has been unfairly restricted from providing for themselves, no corporation owes a living to anyone else. To accuse someone else of creating "wage slavery" we must identify the crime: what is it? If it is only that the corporation has been able to establish a dominant monopoly (outside of (beyond) State assistance) because of otherwise reasonable business practices then (in rare cases) action may be justifiable, but we cannot make the case that a crime has been perpetrated by the Capitalistic system as a whole.

Instead, it is more reasonable to talk about "land slavery" which describes the monopolisation of natural resources, either by fair means (unlikely) or foul... (Sat 18th April'09)