Anger as Facebook in line for $429m tax refund despite $1 billion profit

17th Feb 2013 | 22:00

Anger as Facebook in line for $429m tax refund despite $1 billion profit

Social network gets a multi-billion dollar tax break

Despite recording annual profits of over a billion dollars in 2012, Facebook will scoop a giant tax refund in its homeland, much to the chagrin of tax activists in the US.

The social network announced earnings of $1.06 billion (UK£0.63, AUD$1.029) at the end of last year, but tax breaks mean they'll also recover a $429m (UK£276, AUD$416) net tax refund from Uncle Sam.

How, you ask? Well because of its IPO in May 2012, Facebook was able to apply for a whopping tax break covering stock options for executives, while refunds from earlier years also contributed to the pot.

The company saved $1.03 billion (UK£0.66, AUD$1) in federal and state taxes because of the tax break, while the same loophole will allow it to avoid paying another $2.17 billion (UK£1.4, AUD$2.1) in years to come.

Liability becomes profit

Facebook claimed to have a "tax liability" of $559 (UK£360, AUD$542) million for 2012, but the "excess tax benefits" listed above flips that liability into a tidy little profit for the publicly traded company.

Facebook's filing has angered US tax research and lobbying group Citizens for Tax Justice, who pointed out the figures in its detailed analysis of Facebook's end-of-year report.

However, as strange as it seems for a company as large as Facebook to be receiving cash back from the government, as Bloomberg Businessweek pointed out, the company isn't breaking any rules, just employing a little "accounting wizardry."

"Companies like Facebook are allowed to treat the cost of non-cash compensation, such as stock options, as an expense that reduces profits, essentially the way they treat cash compensation such as salaries," it said.

If you don't mind encountering a little financial jargon, check out CTJ's analysis of the situation for some eye-opening insight into how tax legislation can be used to benefit the corporate elite.

Via Bloomberg Businessweek

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