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Facebook turns billion-dollar profit into tax refund

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Bloomberg is reporting that Facebook has managed to parlay a billion-dollar profit for 2012 into a tax refund of US$429 million.

According to an analysis by Citizens for Tax Justice, The Social NetworkTM got its tax break through deductions for the cost of executive stock options and share awards. For tax purposes, these are treated the same as cash compensation to the executives.

As Bloomberg notes in Business Week, Facebook’s report to shareholders refers to a US$559m liability for federal taxes. Only in the footnotes do alert readers of financials find out that the liability is offset by a $1.03 billion “excess tax benefit” for the stock options.

Its 2012 tax “liability” turned out to include refunds of US$451m for prior taxes paid. Facebook also plans to carry forward another US$2.17 billion in “net operating losses” that should keep its tax bill humming along nicely at zero in the future.

Indulging in a little own-trumpet-blowing, CTJ notes “in total Facebook’s current and future tax reductions from the stock options exercised in connection with its IPO will total $3.2 billion. That’s almost exactly what CTJ predicted last year, when Facebook first announced its IPO”.

The revelations are likely to fuel the growing international backlash against the tech sector’s skill at tax minimisation. While Google’s Eric Schmidt is proud of his company’s tax record, the UK’s Public Accounts Committee seems unhappy over tax minimisation in that country. ®

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