Facebook’s initial public offering is the buzz of the technology community, but it’s not going unnoticed in Washington.
On Thursday, Sen. Carl Levin (D-Mich.) said that the social network’s public stock offering is a prime example of why Congress needs to close loopholes in corporate taxes.
“Facebook’s IPO tomorrow will certainly make history in one way — the corporation's $16 billion stock option tax deduction will be the biggest Mack truck ever driven through the stock option loophole,” he said on the Senate floor.
The group Citizens for Tax Justice said that the tax law allows corporations to issue options to employees to buy company stock in the future for its original issuing price. If the stock goes up in value by the time employees exercise the option, the company can deduct the difference for tax purposes.
Facebook’s filings say that the deduction, which could reach about $16 billion, will result in a net operating loss that could entitle the company to a refund on corporate taxes it paid in the past two years. According to the filing, that refund could “be up to $500 million and payable to us” during the first six months of 2013.
Other senators also used Facebook on Thursday to illustrate what they say are problems with the country’s tax code, although the example they used doesn’t work with the company any more.
Sens. Chuck Schumer (D-N.Y.) and Bob Casey (D-Pa.) proposed a bill that targets individuals who renounce their U.S. citizenship for tax purposes. The proposal is a response to Facebook co-founder Eduardo Saverin’s announcement that he had become a citizen of Singapore ahead of the company’s IPO. Saverin owns around 4 percent of Facebook, a stake estimated to be worth $3 billion.
Under the proposal, “any expatriate with either a net worth of $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax avoidance purposes,” according to a release from Schumer’s office. They would also pay 30 percent capital gains tax — the same rate for U.S. residents liable for the tax. If an expatriate can prove he or she has a legitimate reason for renouncing U.S. citizenship, no penalties will apply, according to the proposal.