Twitter, Facebook and pals keep BEELLIONS from treasury with exec pay tax break – report
Stock option loophole helps 12 tech firms legally dodge $4bn, say activists
Twitter, Facebook, LinkedIn and other tech firms will shelter billions of dollars in profits from taxation with the executive stock options they have planned for the next few years.
According to Citizens for Tax Justice, an activist research group, annual reports from companies like Zynga, Salesforce and Rackspace along with IPO filings from Twitter show that 12 tech firms could eliminate all taxes on the next $11.4bn they earn, giving them $4bn in tax cuts.
Because a lot of tech firms go public when they're not profitable yet, the stock options roll over into future years, giving the companies a backlog of tax breaks to use.
Stock options reduce tax by paying executives with an option to buy shares in the company at a favourable price at a set time in the future, rather than giving them wages in cash. When the options are "exercised" (the employee buys the shares), the company takes a tax deduction for the difference between the amount the employee pays for the stock and what it's actually worth. Employees do report the difference as taxable wages, so governments get some tax from the staffers' wage packets, but the stock option break can significantly reduce corporate tax payments.
The CTJ said that in the case of Amazon, income taxes had been cut by $750m in the US between 2010 and 2012. The etailing behemoth had an effective tax rate over these three years of 9.4 per cent when all its breaks were factored in. In CTJ's calculations, without the stock options break, Amazon's rate would have been 40.4 per cent.
"Allowing companies to deduct 'expenses' they never actually paid, as the current stock option rules do, means that profitable companies rewarding their executives with lavish stock options have a simple strategy for avoiding their income tax liability," the group said.
"Paring back the tax break… or eliminating it entirely, would help make the corporate tax fairer and more sustainable in the long run."
Although it hasn't even débuted on the market yet, Twitter already has $107m of unused stock option deductions, while Facebook still has $2.17bn in unused tax breaks, even after claiming a massive $1bn of the breaks last year.
The CTJ said some companies don't even put the cumulative amount of unused stock option deductions they forecast they'll have in the future into their annual financial reports, so it's difficult to know how much tax they'll be able to avoid. ®