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Zoom paid no federal income taxes in 2020 amid profits surge

Videoconferencing giant Zoom emerged as one of the biggest beneficiaries of the novel coronavirus pandemic as millions became dependent on video calls to stay connected.

The videoconferencing platform raked in nearly US$663.9 million in pre-tax profits in the US alone during its last fiscal year, which ended in January, compared to the US$16.3 million recorded for the previous corresponding period.

But the company paid US$0 in federal income taxes on those profits, it disclosed Friday in a filing with the Securities and Exchange Commission, even though the corporate tax rate was 21 per cent for 2020.

The Silicon Valley firm appears to have achieved that feat largely thanks to its use of stock-based compensation for employees, which helped reduce its worldwide tax bill by more than US$302 million for the January year end.

Corporations that pay their executives in stock often benefit from a provision in the federal tax code that lets them write off expenses that appear far larger than their actual cost, according to the Institute on Taxation and Economic Policy.

“This is a strategy that has been leveraged effectively by virtually every tech giant in the last decade, from Apple to Facebook to Microsoft,” Matthew Gardner, a senior fellow at the think tank, wrote in a blog post detailing Zoom’s tax discount. “Zoom’s success in using stock options to avoid taxes is neither surprising nor (currently) illegal.”

However, a Zoom spokesperson said the company “complies with all applicable tax laws” in the nations where it does business.

It has also invested in research and development to bolster its communications technology, which is “specifically encouraged under current law”, the spokesperson said.

Research and development credits reduced Zoom’s total income tax bill by about US$3.2 million last fiscal year, its annual filing shows.

“We are proud of the role we have played through this technology in supporting and fuelling the US economy, particularly during the pandemic, enabling tens of thousands of businesses and schools to continue operating,” the Zoom spokesperson said in a statement.

Zoom’s use of stock payments to executives to reduce its tax bill reignited criticism from lawmakers and advocates who argue in favour of closing loopholes that allow massive, profitable corporations to pay less in taxes than millions of Americans.