Sponsorship Link
(Reuters) - Facebook, the social network giant on the verge of a huge initial public stock offering, pays an unusually high tax rate, but that is likely to change soon, analysts said.
/
At 41 percent on an effective basis, Facebook's tax rate is well above rates paid by larger, more mature high-tech groups, and above the top U.S. corporate income tax rate of 35 percent.
But the exercise by investors of millions of stock options after the IPO, along with the opportunity for Facebook to shift more earnings overseas like other tech firms, will pull down its tax rate almost immediately, experts said.
"This is going to be a temporary thing, this high rate. That will go away quickly," said Robert Willens, author of the Willens Report, a publication about tax and accounting.
Facebook attributed its high tax rate to losses outside the United States which were not tax deductible and to non-deductible share-based compensation.
Must Read
Follow us
Post-IPO Facebook will get an instant tax break when its employees and other shareholders exercise "non-qualified" stock options. When that happens, the option holder pays tax on the proceeds, while the option issuer books a compensation expense.
That expense translates into a deduction from corporate taxes, said Tom Porter, a vice president with NERA Economic Consulting, and a former staff member at the Financial Accounting Standards Board, the U.S. accounting rulemaker.
Depending on the stock price at the time, if all 187 million of Facebook's vested non-qualified options were exercised in 2012, that could generate a corporate income tax deduction somewhere over $1 billion, according to the Facebook IPO filing.
That alone could wipe away its 2012 tax bill and still leave deductions to offset taxes paid in the two prior years.
BIG REFUND SEEN
Facebook executives could not make any comment on their tax rate beyond what is in the filing due to restrictions on communicating during the period leading up to a stock sale, a spokeswoman for the company said.
In its filing, Facebook said the impact of exercising the options could produce a tax refund of "up to $500 million and payable to us during the first six months of 2013."
The company's current 41 percent effective tax rate far exceeds that of firms such as Yahoo! Inc, at 29 percent for 2011; Google Inc, at 21 percent for 2011; and Apple Inc, at 24.2 percent for fiscal 2011 ended in September.
Even some new firms pay lower rates, including game designer Zynga Inc, which reported a 2010 tax rate of 28.7 percent, according to its December 15 registration statement.
