The recently-gone-public social network could set up small satellite officies in countries with comparatively low tax rates, funneling income through foreign nations so money is never technically earned in the U.S. -- and therefore not subject to American tax codes.
Such a move would be completely legal. It's currently employed by a variety of companies, including Apple, which was the primary subject of a recent article in The New York Times about the practice.
The technique is particularly well-suited to technology firms such as Facebook because the company's bottom line doesn't depend on selling tangible goods. Facebook's network and data are the products being sold, and data pay no mind to international borders, bodies of water or other impediments to international trade.
Facebook's S-1 filing hints the company may indeed be preparing to send its intellectual property on a tax-minimizing trip across the world.
"Our effective tax rate in the future will depend on the portion of our profits earned within and outside the United States, which will also be affected by our methodologies for valuing our intellectual property and intercompany transactions," reads the S-1.
Technology firms don't just benefit from the intangibility of their products, however. There's plenty of domestic tax subsidies to be enjoyed for doing research and development, or R&D. Tech firms do a lot of R&D in comparison to businesses in other fields, and that drives their effective tax rate even lower.
How low can they go?
Internet companies paid an effective tax rate of 5.9% in 2009, according to an NYU study. By way of comparison, the United States has an official top corporate tax rate of 35%. Car manufacturers and shipping companies paid upwards of 30% in corporate taxes in the same year -- the downside of selling heavy, tangible, difficult-to-fit-on-the-Internet products.
Facebook did not return a request for comment in regards to this article.
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