Suppose that Epic made P income from Paragon and I income from everything else. They are taxed at T.
So if they return P to customers, that's a loss. So they will pay (I - P) * T in taxes and end up with (I - P) * (1 - T).
Suppose they kept P, that's gain. So they will pay (I + P) * T in taxes and end up with (I + P) * (1 - T).
So even though they pay less in taxes ((I - P) * T < (I + P) * T), they will end up with less money ((I - P) * (1 - T) < (I + P) * (1 - T)).
Basically, what it means is the following:
Year 1 - I spent $10M on Paragon (let's pretend I've made a single dollar from it). I therefore have negative -$10M in profit, so I pay zero taxes.
Year 2 - I shut Paragon down. I still have $10M in losses from Paragon. Fortnite does $30M in Revenue and it cost me $20M to build Fortnite in Year 2. Theoretically I profited $10M in year 2 and I'd have to pay ~30% (thats not the real number, so don't correct me) of that in taxes, so I really only get to keep $7M of that to reinvest.
But I get to carry my loss forward from Year 1 onwards. So in theory I get to keep more of my profit due to a smaller tax burden. Generally speaking this is usually done over 5 years. So I'd take $10M and amortize it $2M ever year. Meaning Year 2, instead of paying 30% of $10M, I would pay 30% of 8M, so $2.4M versus $3M. It's obviously way more complicated than this, but this is the gist.
I'm describing the tradeoff between intentionally taking the loss (i.e. allowing returns of the game) vs keeping the profits they've made.
They still have less money and it is in no way better than if Paragon had made a profit.
The "yeay it failed! we get a tax write-off" thing is stupid and wrong.
Can someone explain?