Facebook will pay no tax on $1.1 billion profit; gets refund instead

Facebook, the Internet giant with over 1 billion users, are going to pay no tax in the US, a report has revealed. Due to some nifty accounting, Facebook managed to pay no federal or state tax - in fact, they got a refund of $429 million. 

Citizens for Tax Justice, who research tax fraud, released a breakdown of how Facebook achieved this. What Facebook did was clever: because executive stock is tax deductible, Facebook issued a lot of it. In fact, they issued so much the deductibility ended up being higher than the taxes Facebook owed to both federal and state government. For this reason, the government ended up having to pay Facebook a refund on the tax they'd got from them in 2010 and 2011, which was roughly $429 million. 

On top of getting almost half a billion dollars from the government, Facebook is also carrying $2.17 billion forward for additional tax breaks in future years, essentially allowing them to complete the same manoeuvre every year. 

Of course, Facebook isn't the only company paying small amounts of tax. Companies such as Microsoft, Apple and Google are all under intense pressure to cough up the money they've avoided paying, especially in Europe where tax havens are used extensively to avoid taxation. 

In the fourth quarter of 2012, Facebook made $64 million in net income on $1.6 billion of revenue. 

Source: Citizens for Tax Justice, Gawker

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MURICA! Seriously, America has so many failings, it's amazing it's managed to keep it's **** together this long.

Raa said,
I want their accountant for my business...

Unless you also want to lose more money than you make. It's not going to help you much.

And this is why America is broke... /rolleyes
So sad corporations can get away with this kind of **** while the middle class has to pay the price.

Look at these numbers from the and tell me that's why America is broke: The US is expected to take more in taxes this year than almost any other year in history -- both from individuals and from corporations. And that number is expected to increase pretty significantly by 2017. Heck, the government is expected to take in twice as much in 2017 as they did in 2011 (excluding FICA, etc). To say we have an income problem is ridiculous - we're broke because of crazy spending.

Source:
http://www.taxpolicycenter.org.../displayafact.cfm?Docid=203
Taken from here:
http://www.whitehouse.gov/site.../fy2013/assets/hist02z1.xls

And nowhere in this article does it state how much tax they paid in 2010 or 2011. Kind of a failure on the article's part since it's clearly relevant. But of course that wouldn't be in keeping with the clear direction the writer wanted to take it...

All companies operate to maximize their profits. If they are operating with the legal framework then perhaps it's the legal framework that needs changing. The rest is leftist 'moral responsibility' blah-blah.

You don't know how governments work right? WE pay those taxes FOR the government, so they stole your money destinated for the development of your country, instead FB will use those millions for f***ing ads and spyware research.

Facebook did a great job collecting a HUGE databank on half a billion people, CIA and FBI could not even imagine scale, quality and level of details of such a data set 10 years ago. So? So Facebook is "enjoying" all these nasty tax breaks and deductions.

You are aware that you do not have to pay income tax in america right? Sure, the RIA will come knocking, and will drag you through court. But there is one simple question that will make the RIA go home with their tails between their legs.

Where is the law that says I have to pay income tax?

Its quite funny asking the RIA this question, because they go on some nonsensical rambling about how its your duty to contribute, and never actually show you the law that says you have to pay. It's like a government ran mafia protection racket.

1. Do you mean the IRS?
2. 16th Amendment - The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Like Jason above me said, you avoid taxes and they will get your money and or they will put you in jail.

This is a political issue. (What is it that Facebook is doing that gets them such a wonderful treatment at IRS? What kind of service do they provide to the authorities?)

You would think that it's in the own interests of the most indebted government to collect the taxes from the resident corporations...so they could, you know, pay off or decrease that massive debt.

It never happens.

Why?

Because the FED can print as much money as they want to.

[quote=zhiVago said,
Because the FED can print as much money as they want to.

[/quote]

No, they really can't, why do,people keep thinking this. Even with the ridiculous notion of the billion dollar platinum coins. Of course the moment they're minted inflation makes the, virtually worthless.

HawkMan said,

No, they really can't, why do,people keep thinking this. Even with the ridiculous notion of the billion dollar platinum coins. Of course the moment they're minted inflation makes the, virtually worthless.

the USD has lost more than five times of its value since the year 2000.

From the comments:


".three things, one which you get wrong and two others that CTJ does not make clear enough. First, the tax refund is not from taxes paid in 2010 and 2011, it is from FY 2012 prepaid taxes based on quarterly revenue. Note 1 from the CTJ article cites tax loss carrybacks from 2010 and 2011. It means that they shouldn't be taxed because they had losses in 2010 and 2011. It should be noted that they likely paid no taxes in 2010 or 2011 either.

Second, which is much more important and explains the first point if it would have been discussed, is note 2 from the CTJ article that describes NOLs of $5.8b and $7.6b. This means that Facebook has losses carried forward for which they can offset income in future years, as long as there is a reasonable expectation that they will one day earn enough profit to use the NOLs. As a result of these NOLs, even if Facebook didn't take option expense costs into consideration it still would have not paid any tax and would have received a refund for its prepaid 2012 taxes.

Finally, FACEBOOK IS REQUIRED BY THE IRS AND TREASURY TO CALCULATE STOCK OPTION EXPENSE AND INCLUDE IT AS A COST FOR TAX PURPOSES! It is the same as salary expense. CTJ is calling it a tax break, which is inflammatory and arguably inaccurate. It is an expense, the same as salary, that reduces the profits of a company."

"FB is not one step ahead, they are not exploiting a tax loophole, and they are not even doing anything that would be considered aggressive from a tax planning perspective (at least not with respect to stock options). Deducting stock option expense from taxable income is normal business practice and required under GAAP. It is the same as deducting salary expense or R&D expense. Under any tax system, expenses incurred in the normal operation of conducting business are deductible. In almost all instances where an article states that company X had income but did not pay taxes there are prior year losses that offset the income in the present year. And yes, you do get a tax refund for prepaid taxes that you are not liable to pay. In the other inflammatory article scenario, the author will state that company X earned worldwide profits but paid no US income tax, neglecting to mention that the US operations did not earn a profit (see all NY times transfer pricing articles). I have yet to see an article that even describes a truly aggressive tax position."

Dislike is a very gentle way of describing this kind of stuff!

djdanster said,
Why can't companies just pay taxes honestly like EVERYBODY ELSE ON THE PLANET?!

Key word:

honestly

djdanster said,
Why can't companies just pay taxes honestly like EVERYBODY ELSE ON THE PLANET?!

Honestly?

You're saying they're dishonest in what they're doing? If you look at it, they're actually following the law better then you or I. Infact, they're doing perfectly to the point they're getting a refund.

Now, I don't know about you, but honestly, and personal opinions should not come into matters like this since it create a grey area where there is no legal definination of what's 'honest', 'right thing to do' or of 'a morel standard'.
A few examples;
Is selling a house at the edge of the tax bracket, or even a few 1000's under if it means you pay no tax and get a greater amount after the sale?
Or maybe your house is worth a lot more then the tax bracket, so you can't dodge tax that way. Is it morally right, or honest to then check the housing market hold off selling it for several months knowing the market prices go up mid year?

What about the average joe running his own business, registered at his home address selling car parts, he wants to expand his business but doing so will put him into the next tax bracket. So he gets his wife to create and run her own business selling car parts also. Is that honest? no?
What if joe and his wife both already had their own businesses, car parts and a mobile hair dresser?

of course tax brackets depend on your local country but you should be able to get the point I'm aiming at. You need legal definition of what is not ok to do. Until the law makers decide to do something about the loop holes these companies have every right, legally and lawfully to do so.
However the law makers won't do anything, since they'll mostly be using the same loopholes themselves!.

sagum said,

You're saying they're dishonest in what they're doing? If you look at it, they're actually following the law better then you or I. Infact, they're doing perfectly to the point they're getting a refund.

Now, I don't know about you, but honestly, and personal opinions should not come into matters like this since it create a grey area where there is no legal definination of what's 'honest', 'right thing to do' or of 'a morel standard'.
A few examples;
Is selling a house at the edge of the tax bracket, or even a few 1000's under if it means you pay no tax and get a greater amount after the sale?
Or maybe your house is worth a lot more then the tax bracket, so you can't dodge tax that way. Is it morally right, or honest to then check the housing market hold off selling it for several months knowing the market prices go up mid year?

What about the average joe running his own business, registered at his home address selling car parts, he wants to expand his business but doing so will put him into the next tax bracket. So he gets his wife to create and run her own business selling car parts also. Is that honest? no?
What if joe and his wife both already had their own businesses, car parts and a mobile hair dresser?

of course tax brackets depend on your local country but you should be able to get the point I'm aiming at. You need legal definition of what is not ok to do. Until the law makers decide to do something about the loop holes these companies have every right, legally and lawfully to do so.
However the law makers won't do anything, since they'll mostly be using the same loopholes themselves!.

They're not "following the law", they're exploiting its loopholes. Big corporations employ tax lawyers that spend all their time finding these loopholes. The government closes some, then the lawyers find more, they fill those, etc etc, it's a continuous cycle. The whole tax debate has become a moral question. Unless you're on PAYE and then you have no choice anyway.

The examples you use are flawed, someone waiting for house prices to rise will find the WHOLE market has risen so the place they buy will cost more anyway. Nobody is being exploited, so they don't gain any advantage anyway.

The couple setting up identical businesses selling car parts is doing so simply to avoid tax. Same couple running completely unrelated businesses (which are classified differently by HMRC etc) are simply linked by marriage.

Tax pays for many benefits and public resources used by these companies and their employees, yet these companies profits are sky high while government debt is also huge. Something has to give eventually.

Youngy said,
snip

Err... no.... They are following the law just fine. The article even spells out that they were audited and nothing was wrong.

Should the laws change? Yeah probably, but as of now, they aren't doing anything wrong...

Youngy said,
They're not "following the law", they're exploiting its loopholes.

In some cases, you're definitely right. This isn't one of those cases. There's no loophole that's being exploited. FB had massive losses the last two years that they can use to deduct from their gains this year. They also gave away lots of stock options, which they can also deduct from their gains. You can do the exact same thing --- sell stock at a $3,000 loss and guess what, you can deduct $3,000 off of your income! Or sell stock at a $20,000 loss and another stock at a $20,000 gain, and you don't pay any tax on that $20,000 gain! It's no different than what FB did. They didn't move funds to offshore accounts or setup a shell company or anything like that from what I've read. Previous and current losses offset current gains, it's that simple and works for everyone.

Dislike? So you'd prefer Facebook to not give all of its employees large stock options and pay tax instead? That way you can complain that "the big company isn't compensating its employees properly!" In addition, FB had billions in losses the past two years -- which they can deduct this year. It's similar to selling stock at a loss and using it as a write-off over a few years. If you lose $1B in year 1 and $1B in year 2, but make $1B in year 3, why should you have to pay taxes on that full amount? Makes no sense to me.

It's easy to say, "That's not fair," but if people would dig a little deeper than a headline, they'd understand what's going on and probably not be quite as upset. Maybe.

Fezmid said,
Dislike? So you'd prefer Facebook to not give all of its employees large stock options and pay tax instead? That way you can complain that "the big company isn't compensating its employees properly!&quot

How many people work for FB on their California HQ or close-by offices and how many actual tax-payers are on the entire California? Because you know, the tax they are not paying, plus the one they are getting as a refund has to come from somewhere, and that is from the pockets of the rest of CA residents.

This is simple maths, I'm not even from USA to care enough about it.

Fezmid said,
Dislike? So you'd prefer Facebook to not give all of its employees large stock options and pay tax instead? That way you can complain that "the big company isn't compensating its employees properly!" In addition, FB had billions in losses the past two years -- which they can deduct this year. It's similar to selling stock at a loss and using it as a write-off over a few years. If you lose $1B in year 1 and $1B in year 2, but make $1B in year 3, why should you have to pay taxes on that full amount? Makes no sense to me.

It's easy to say, "That's not fair," but if people would dig a little deeper than a headline, they'd understand what's going on and probably not be quite as upset. Maybe.

But if you're facing losses in a free market and unable to compete, then you shut down. Survival of the fittest in a free market. Isn't it?

You're mixing up profits and free market. Most businesses do not make profits early on. They receive cash from investors for a long-term strategy. Once they run out of investors and can no longer afford anything, then they go out of business. In the case of FB, lots of people are willing to invest in the company because they believe in the long term success of the company. If FB runs out of money, they shut down. If they LOSE money, but still have more money to spend, they stay in business - and the government allows them to deduct their losses from future profits, just like you can do if you sell a stock at a loss. It really shouldn't be that hard to understand.

And again - would you have preferred that Facebook NOT given its employees stock options and instead just paid tax on that money?

Fezmid said,
Dislike? So you'd prefer Facebook to not give all of its employees large stock options and pay tax instead? ...

Tax would benefit millions, if not hundred millions, of citizens, not just a bunch of employees. FB employees have enough already. If they want to get rich, then DON'T be an employee. An employee is simply just an employee, will not as rich as the owner of employees.

Duh!

mahara said,

Tax would benefit millions, if not hundred millions, of citizens, not just a bunch of employees. FB employees have enough already. If they want to get rich, then DON'T be an employee. An employee is simply just an employee, will not as rich as the owner of employees.

Duh!


And this is what's wrong with the world nowadays. "You have enough already, give more to me me me!" /sigh

Fezmid said,
Dislike? So you'd prefer Facebook to not give all of its employees large stock options and pay tax instead? That way you can complain that "the big company isn't compensating its employees properly!" In addition, FB had billions in losses the past two years -- which they can deduct this year. It's similar to selling stock at a loss and using it as a write-off over a few years. If you lose $1B in year 1 and $1B in year 2, but make $1B in year 3, why should you have to pay taxes on that full amount? Makes no sense to me.

It's easy to say, "That's not fair," but if people would dig a little deeper than a headline, they'd understand what's going on and probably not be quite as upset. Maybe.

With the kind of money they make they can do both, compensate their employees reasonably and pay an appropriate level of tax. But they wont do that because of all the greedy shareholders and owners who want more more and more. If you pay your taxes it doesn't mean you don't have the money to reward your employees. You don't have to be a genuis to figure that out.

Fezmid said,
You're mixing up profits and free market. Most businesses do not make profits early on. They receive cash from investors for a long-term strategy. Once they run out of investors and can no longer afford anything, then they go out of business. In the case of FB, lots of people are willing to invest in the company because they believe in the long term success of the company. If FB runs out of money, they shut down. If they LOSE money, but still have more money to spend, they stay in business - and the government allows them to deduct their losses from future profits, just like you can do if you sell a stock at a loss. It really shouldn't be that hard to understand.

And again - would you have preferred that Facebook NOT given its employees stock options and instead just paid tax on that money?

you have no clue what you are talking about. I suggest you let it go. You are just exposing yourself and the little knowledge you have.

blackhove said,

you have no clue what you are talking about. I suggest you let it go. You are just exposing yourself and the little knowledge you have.


Care to point out what I said that was incorrect?

Fezmid said,

And this is what's wrong with the world nowadays. "You have enough already, give more to me me me!" /sigh

It's not about "give more to me" but it's about Facebook paying their own taxes so that *millions* of other citizens don't have to cover for them. Every time you as an average Joe see increased fiscal pressure, it's because Facebook, Google, Apple, Microsoft, and other companies that "legally" evade taxes are not helping pay your state and country's debt.

Fezmid said,

And this is what's wrong with the world nowadays. "You have enough already, give more to me me me!" /sigh

And if it were not wrong enough, I guess next time citizens shouldn't pay taxes at all. Just let the country dies...
We'd probably have a better life without tax, government, and rules.