Facebook’s tax break draws ire

Facebook's first annual earnings report contains a multi-billion-dollar tax deduction towards the cost of executive stock options and share awards, an accounting manoeuvre that has not drawn much attention.

Even though the social network posted $1.1 billion in pre-tax profits from US operations in 2012, it would probably pay zero federal and state taxes - and even receive a federal tax refund of about $429 million - according to a 14 February statement from Citizens for Tax Justice.

According to the tax-research and -lobbying organisation, companies such as Facebook should treat stock options the same in their reports to shareholders as they did in their tax filings.

According to Citizens for Tax Justice, the tax footnotes in Facebook's 30 January financial statement was ''an amazing admission,'' but the company claims there was nothing illegal about the breaks. Companies like Facebook are allowed to treat the cost of non-cash compensation, such as stock options, as an expense that cuts profits, in much the same way they treat cash compensation such as salaries.

The difference was that Facebook - unlike, say, General Motors - relied heavily on stock options and restricted stock units as a form of compensation. The social network paid out a lot during its years as a private company that it would need to  recognise on its income statement and balance sheet.

Despite earning over $1 billion in profits last year, Facebook paid nothing in federal and state taxes in 2012.