Comment by ashwinsundar 8 days ago
I think you are conflating "software engineers" with "software". A business that pays a software engineer doesn't automatically receive working software in return, especially not in the first year. It doesn't seem fair to assume that paying a dev $200k means that the business received an asset (some code) worth $200k in return, and thus can be taxed on it as if it were an asset producing $200k in profits a year.
I don't know how you're supposed to value software. I just reread your original post - picking 10% out of thin air doesn't make much sense either.
Software is more like a blueprint for a building, it's not the building itself. How much is a blueprint worth? If 100 architects spent a year on it, does that mean the blueprint is worth 100 x salaries? It might actually be worth nothing, if the blueprint asks the construction team to do something impossible.
Software is even worse though, because at least with construction, there are known physical models and real-world constraints (like physics) that decide whether a design can or cannot be implemented. A piece of software written today might be entirely unimplementable and worth nothing, but a breakthrough elsewhere in 5 years might make it extremely valuable at that time
I really agree in all your points, and the the 10% would be the proposed practical middle ground - but it is neither a good model.
I don't know how to tax this.
But I can identify the issue: You can channel your revenue into a non-taxible assets that you can bring into the next accounting period tax free.
Regardless of this is stocks, bonds, gold, unsold inventory, or IP, that is not fair.
I would hope for someone to device something that is fair and easy to understand. And then I would hope for them to get it through to the politicians.
andrewlgood is explaining the capitalization process in another thread under this post - I can recommend reading that.
I am not conflating, but the law is. Obviously it would be better to have an appraisal of the software - I reckon law makers see the cost of producing ad an ok proxy.
Btw,this is how it is done in many construction projects also. Like bridges, budings, etc.