back to article Twitter, Facebook and pals keep BEELLIONS from treasury with exec pay tax break – report

Twitter, Facebook, LinkedIn and other tech firms will shelter billions of dollars in profits from taxation with the executive stock options they have planned for the next few years. According to Citizens for Tax Justice, an activist research group, annual reports from companies like Zynga, Salesforce and Rackspace along with …


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  1. Ralph B

    The downside of atheism

    In the Good Old Days we could take comfort in believing that such faustian chicanery would, eventually, be punished by the Eternal Fires of Hell. Nowadays it's hard to believe it might even result in the lightest slap on the wrist from a financial regulator.

    1. SD24576

      Re: The downside of atheism

      This isn't some tax wheeze that those terrible tax-avoiding companies are taking advantage of though - this is a specific piece of tax legislation that has been introduced (many years ago now) to encourage companies to give their staff a stake in the businesses they work for as part of their reward package.

      It's completely up-front with HMRC receiving forms each year detailing exactly what's going on and with the most beneficial arrangements only available on schemes that have been specifically approved by HMRC.

      Effectively the company is giving away something valuable (a stake in itself) and getting nothing in return, so it's easy to see why a government might think some tax relief is in order to encourage this behaviour.

      The relief is restricted to situations where the employee has actually benefited (because the exercise price is higher than the option price) so there's limited potential for abuse.

      1. bigtimehustler

        Re: The downside of atheism

        Indeed, less of the company and executive bashing please. Personally I work hard and get stuck into my own projects with the hope of being successful one day, it seems most people just look on at successful companies and their owners with jealousy and contempt. Ultimately the vast majority are just following tax laws, in this case ones which were designed to benefit employees by giving them a stake. If the government doesn't like the current tax laws, they are free to change them and the companies and owners are free to stay or move somewhere else.

        1. Anonymous Coward

          Re: The downside of atheism

          @BTH - The idea that this is all about risk,sweat and toil is a pleasing myth, but nevertheless, myth it is. The original idea was that execs wih 'skin in the game' would act in the best interests of the company. The unfortunate reality is that - and we should have expected nothing else - they act in the best interests of the stock price.

          1. Pascal Monett Silver badge

            Re: "designed to benefit employees"

            Fine then, make it tax deductible for employees only.

            The CEO is not an "employee". Yes, I know, he is under the employ of the board, but there isn't a person in Microsoft, HP or any other Fortune 500 company that is going to refer to the CEO as en employee. He's the Boss, and his word is God's will (as long as the Board is happy, or, in Microsoft's case, not too unhappy).

            So I think that stock options for CEOs should NOT be tax deductible. That would solve part of this issue, and make things fairer for everyone.

      2. CaptainHook

        Re: The downside of atheism

        Effectively the company is giving away something valuable (a stake in itself) and GETTING NOTHING IN RETURN


        A part from being able to make up part of the staff pay packet in a form which doesn't affect cash flow while actually increasing staff loyalty because they generally can't get at the shares which haven't yet vested if they leave. I.e. if the staff leave, they have to willing lose part of the compensation they earned with their previous employment.

        The share options don't get counted as part of the wage at the point of being issued: as such it also reduces the company NI contributions compared to what the staff would have been paid without substituting part of their pay packet cash for share options.

        Yep, company is getting nothing in return for those staff share options and are only doing it because the government is pushing them that way.

  2. Jamie Jones Silver badge

    Blame the lawmakers!

    Ultimately (and I almost wrote "At the end of the day", which would make me eligible to be a Jeremy Kyle guest! ) it's the law that's at fault.

    The whole thing stinks, but if their weaseling accountants didn't minimise a companies costs, they would not be doing their jobs properly .

    The law is an arse etc., but surely the lawmakers could have used someone as competent as these accountants to ensure the law was drafted without the loopholes (or is there a hidden agenda?)

    1. Anonymous Coward
      Anonymous Coward

      Re: Blame the lawmakers!

      Ah yes, that old one. Tosser.

      1. Jamie Jones Silver badge

        Re: Blame the lawmakers!

        Care to expand Mr Coward?

        And what I do in the privacy of my bathroom is no-ones business!

  3. frank ly

    "Effectively the company is giving away something valuable (a stake in itself) and getting nothing in return, .."

    They could have given cash (which is valuable), but this way has advantages for the employee/director.

    They do get something in return, they get the services of the employee/director, which must be of value to the company or they wouldn't keep them in employment/appointment.

    If the company really does value the ownership of its own shares, it can simply buy them in the open market and run accountancy methods to turn this to its advantage.

    The entire point of this process is to reduce the amount of tax paid by the employee/director and the company. It has nothing to do with 'giving people a stake in the company'. If people wanted that, they'd buy shares. It's not 'ordinary workers' who are given these deals, it's directors and high level managers.

    1. SD24576

      Well if the company paid cash out to the same value, it would also get a tax 'break' because it would be a deductible expense (ignoring complications like NIC).

      The employee will often pay tax, usually on exercise of the share option. Where it is tax exempt, such as with an EMI scheme, there are limits in place on the overall size of the scheme and conditions on the type of company and employee so the reliefs are targeted.

      It may not be the average shopfloor worker in a large 'production line' manufacturing company that gets these options, but in my vaguely related professional experience the share options are often available to a very wide range of employees, especially where the company deals in services or is relatively young. Granted, the directors may get more beneficial share options than the rest of the firm, but then they'd get more cash if it was abolished, so c'est la vie.

      I guess I'm just not sure the outrage is justified. There really *are* policy goals of encouraging share ownership, it's not just a plot by HMRC to collect less tax.

  4. Longrod_von_Hugendong

    Citizens for Tax Justice...

    WTF - what injustice is happening here? its all perfectly legal, no laws have been broken??

    Its there for everyone to use - you just have to work at building a business. You cannot blame anyone except yourself, you have the same chances as everyone else.

  5. Pen-y-gors

    Reasonable principle

    But perhaps it simply needs a cap on the maximum amount - a few million tax-free dollars/pounds should be more than enough to reward staff for their faith in the early years - beyond that they can pay taxes like the rest of us.

    1. SD24576

      Re: Reasonable principle

      At least in the UK, there are caps on the tax efficient schemes, some of them very small (a few grand per employee for some of the schemes) and some are larger caps on the size of the overall scheme.

      A quick summary can be found here:

      I can't speak for the US of course, which is no doubt where a lot of this is happening.

  6. Anonymous Coward
    Anonymous Coward

    Bloody Hell!

    The comments so far on here would almost have you believe that every company mentioned has had one of their financial staffers posting a robust defence of these systems. I'm sure that's not the case.

    The point that seems to be being missed is that the're being allowed to stockpile these tax breaks, rather than a 'use it or loose it' principle.

    Pretty sure that's something your average taxpayer isn't allowed to do.

    But then we don't get to 'come to an arrangement' with the taxman, do we?

    Not that I'm saying that any of the companies in this article would ever do such a thing. Perish the thought.

    1. Irony Deficient Silver badge

      stockpiled tax breaks

      Anonymous Coward of 15:08 GMT, average taxpayers in the States have at least one tax break which can be “stockpiled”: capital losses. Over here, a maximum of $3,000 per annum can be claimed as a capital loss on an individual tax return, so any capital losses above that amount get rolled over into subsequent years. Perhaps Inland Revenue offers a similar scheme?

    2. ragnar

      Re: Bloody Hell!

      Disclaimer: I don't work for any of the companies mentioned :)

      The 'average taxpayer' is absolutely allowed to carry losses forward in the UK (and not just capital losses). Any sole trader is able to carry forward losses to use them against future profits when the company becomes profitable. There's a bit more flexibility for the sole trader compared to companies as well in terms of what they can be offset against.

  7. T. F. M. Reader Silver badge

    What's the problem?

    Looks like a lot of shouting over a perfectly normal situation. Stock options are a kind of compensation - for the corporation it is an expense just like the employee's salary is. Your salary and benefits are deducted from the company's income before calculating taxes (I gloss over payroll taxes here). You, the employee, get taxed on salaries and benefits. Nothing special here.

    To clarify, the company's expense occurs when the option gets exercised - basically the company gives a share worth $X to the employee (executive or not) who pays $Y, where Y < X, so the company incurs a net "loss", and the employee benefits. Executives get taxed, generally when they sell the share for $Z and realize the profit or $(Z-Y) - this is no different from buying a share (at exercise) and paying capital gains. Non-executive employees or contractors or consultants who get "non-qualified stock options" are taxed at exercise - $(X-Y) is taxed as regular income - and later when they sell the share - $(Z-X) is taxed as capital gains. Executives may get their "alternative minimum tax" (all the companies mentioned are in the US) triggered at exercise as well.

    Bottom line: whatever the details are the income is taxed and expenses are deducted, and overall the "transactions" related to compensation are taxed - I absolutely do not see what is so special in this case. Everybody is free to scream that whatever is not taxed today should be taxed, and whatever is taxed today (the usual situation) should be taxed at a higher rate. Point is, any attempt to present this situation as fundamentally abnormal is total bulls**t, IMHO.

    Disclaimer: I am not an accountant or a tax attorney.

  8. Anonymous Coward
    Anonymous Coward

    This is not a tax break.

    These are not "tax breaks" !

    In the earlier years, stock options exercised after a one year holding period were considered capital gains income taxed at the 15% rate to the employee, with NO deduction for social security or medicare. THAT was a HUGE tax break for the employee.

    Now that stock option income is taxed liked a cash bonus and as such, the corporation deducts the cost like a cash bonus or salary expense. That is normal business practice. No news here.

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