Google Inc (GOOG), Apple Inc. (AAPL), Facebook Inc (FB): These Technology Titans Will Face Tough Times If Tax Loop Holes Are Closed

Currently, Research In Motion Ltd (NASDAQ:BBRY) BlackBerry operates at a (11)% pre-tax margin. This implies that levying an additional tax on a company that technically generates no operating income would imply that the tax will not have any immediate effect.

BlackBerry avoids the effects of taxation, but it did so by not being able to remain profitable.

Facebook Inc (NASDAQ:FB) currently generates $374 million in revenue from Europe in the fourth quarter, which is approximately 23% of its overall revenue. Since Facebook Inc (NASDAQ:FB) generated $5 billion in revenue in the past fiscal year, it can be assumed that Facebook currently generates approximately $1.15 billion in revenue from Europe.

It is projected to earn $6.72 billion in sales in fiscal year 2013. Back in 2011, the company had an operating margin of 47.32%. In 2012, the operating margin declined substantially as the company had paid out $1.1 billion in share-based compensation in the June quarter. As a result, we would be better off assuming that 47.32% of the revenue that Facebook Inc (NASDAQ:FB) earns in Europe is taxable.

That being the case, assuming the European division generates $1.54 billion in revenue, the company would be paying taxes on $731 million in pre-tax income. Assuming a 28% tax rate, Facebook Inc (NASDAQ:FB) will be paying out $205 million in additional tax-related expenses.

Analyst’s project that Facebook Inc (NASDAQ:FB) will generate $1.37 billion in net income. Assuming the $205 million reduction in net income from taxes, and it can be assumed that Facebook’s net income could be negative affected by 15%.

Conclusion

The higher a company’s net operating margin, the larger the effect of closing tax loop holes. Companies like BlackBerry, which are unprofitable, may not experience a negative effect. The tax effect can reduce a technology company’s net income by 5%-15% as we just saw.

Remember these are just estimates, but even if these are estimates. It’s good to know that if Europe wins a major reform on corporate taxation, it could impair earnings by a large margin to cause major technology names to tumble on the stock market.

The article These Technology Titans Will Face Tough Times If Tax Loop Holes Are Closed originally appeared on Fool.com and is written by Alexander Cho.

Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited

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