The math behind this sounds reasonable. I.e. if you take the taxes from your profits instead of winning a 10% tax should reduce your profits by 10%. Since all you profits come just directly from multiplying ROI * Buy-in the result for calculating the two things below is the same
ROI * (1-0.1) * Buy-in = (1-0.1) * Profit
This calculation also doesn't change regardless of the magnitude of ROI you have. I.e. if you have 100% ROI this equation holds true the same as if you only have 10% ROI. It will always drop by 10%. Of course one time your ROI will drop from 100% to 90% and one time from 10% to 9% but if we're sticking to proportional discussions it's the same.

However, if you take winnings now you pay taxes on more than your profit. Here the magnitude plays quite an extreme role. In the example you gave above you pay $20k in taxes for achieving a before tax profit of $100k.

Now take another example where your ROI is 10%. If you want to see how much taxes you are paying once you earn $100k it will be ridiculous ->
Winnings * 10% (ROI) = $100.000
Winnings = $1.000.000

Now if you pay 10% taxes on the $1M winnings that you need to generate $100k in before tax profit you will be standing there with nothing. And this can become even more extreme to a point where you are loosing money - despite winning.

I.e. in such a tax environment it makes sense to extremely game-select and push your ROI to the extreme. I.e. play extremely slow formats where there is lots of edge where on the downside though the winrate/hour disregarding taxes might be lower. Any multitabling that will start reducing your ROI doesn't sound like a great idea in this environment.

Now I'm not really an expert on taxes in different countries but I assume in most countries you should be allowed to substract your investments from the winnings before they're taxed so that it equals a tax on the profits.

You said if the tax is on profit then a 10% tax should reduce roi by 10%. But this doesn't seem to be the case. I think it changes between 10 and 20% depending on the size of our wins. If we realise our 100% ROI over 10 1k tournies, that means we profit 10k. But if the profit just comes from one 20k bink and 9 bricks. Then we end up paying $1900 tax on the $19k profit. Bringing our total net profit over the 10 tournies down to $8100. Reducing ROI by nearly 20%.

However if we make 10 2k min cashes. (1k profit each tourny). Then we pay just $100 in tax each, or 1k total. Giving us 9k profit and reducing ROI by 10%

I believe you‘re mixing up
winnings = our payouts/cashes of any tournament
and
profit = winnings - buy-ins
For the case of winnings your statements above are correct only that I think it can vary much more than between 10% and 20% you can just make up more extreme examples.

But talking profit the exact way how we generate it doesn‘t matter. Note that profit means you pay the taxes at the end of the month for instance and not for each single win directly.

Old post, but thought I'd chime in...

It's true that taxes are not compounded after every tournament but due to the variation in outcomes even over large tournament sample sizes the impact of taxes are still far greater than the marginal tax rate and the lower volume you play the more true this is.

Let's pretend it was compounded annually, and you play 200 tournaments with an average field size of 1,000 players. Using tournament sims we can see that still the probability of being down money by the year end is somewhere around 40% for someone with a 25% ROI.

So lets use 5 hypothetical annual outcomes for someone playing 200 $1,000 buy in tournaments a year with a 25% roi who was down 2/5 (40%) of those years :

year 1: +175,000
year 2: -75,000
year 3: +250,000
year 4: -175,000
year 5: +75,000

So you played 1,000 total tournaments with a total buyin of $1,000,000. You showed a $250,000 net profit which is a 25% roi.

Suppose a flat tax rate of 25% compounded annually. Your total tax liability would have been $125,000. That's not 25% of your net winnings, that's 50% of your net winnings.

Consider then a more realistic tax rate of 40%, which given that your winning years will have the large majority of your income in the highest tax bracket is probably closer to reality. Now your tax liability is $200,000, which is 80% of your winnings instead of 40%. Brutal.

This is mitigated by the fact that you can carry losses over 2 years forward or back but it will always be the case that the effective tax rate will have more than a proportional impact on your ROI. Maybe a 40% tax rate, instead of shaving off 80% of your expected annual gains, will in actuality shave off 50 to 60% of your annual expected gains.