Corporate Tax Watch: Facebook and Verisign

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Facebook: An Industry Leader in Rolling the Dice on Probably-Illegal Tax Breaks

The Facebook Corporation has been criticized for paying no income taxes in the U.S and in the rest of the world. The company leads the Fortune 500 in its use of executive stock options as a way of cutting its tax bill. But the company’s latest annual report, covering tax year 2015, adds a new wrinkle: Facebook is now an industry leader in its reliance on tax breaks it doesn’t believe are actually legal. The company discloses $1 billion in new “uncertain tax benefits” related to tax year 2015.These benefits in financial-reporting jargon are tax breaks the company claimed, but that Facebook believes have a greater than 50 percent chance of ultimately being disallowed by tax authorities. The Securities and Exchange Commission (SEC) requires corporations to disclose the value of these tax breaks because this statistic is a great indicator of which corporations are most aggressively pushing the legal envelope in the tax avoidance schemes they concoct each year. Facebook’s 2015 uncertain tax breaks are bigger than those disclosed by Amazon, Boeing, DuPont, Ford Motor and Goldman Sachs put together.

Verisign: Cornerstone of the Tuvalu Economy?

Verisign is less visible than tech giants such as Microsoft and Facebook, in part because the company specializes in maintaining the infrastructure of the Internet. But the company has been every bit as successful as its larger compatriots in avoiding corporate income tax liability. The company’s latest annual report shows that it paid no federal or state income taxes, after subtracting an executive-stock-option tax break, on $250 million in U.S. profits in 2015. And over the past five years, Verisign reports just $1 million in current federal income taxes on over $1 billion in income, for a five-year tax rate of just 0.1%. The company’s low foreign tax rates look downright confiscatory by comparison: Verisign paid an 11.5 percent foreign tax rate on $970 million in foreign profits over the same period. The company notes cryptically that “[a] significant portion of our foreign earnings for the current fiscal year was earned in low tax jurisdictions,” but doesn’t specify what fraction of these profits were placed in Verisign’s subsidiaries in the Cayman Islands or Tuvalu.