Facebook paid £4,327 corporation tax in the UK in 2014

http://www.bbc.co.uk/news/business-34504474

by unfunco • 11 years ago

484 430 11 years ago

bbc.co.uk

maccard2• 11 years ago

Its most recent Companies House filing shows the company as making a pre-tax loss of £28.5m last year, but the firm also paid its 362 UK staff a total of £35.4m in share bonuses.

So £35m was distributed as income towards the employees. This means the employees are paid extra, have more money to contribute and spend locally, and have paid the correct income taxes on the bonuses. How is this a bad thing?

dazc• 11 years ago

How is this a bad thing?

Because the amount of corporation tax paid makes a better headline?

crdoconnor2• 11 years ago

Ah, trickle down economics!

DanBC6• 11 years ago

Facebook reaps the rewards of the UK infrastructure. Facebook should behave as a responsible citizen and help fund that infrastructure.

If they don't want to behave like responsible citizens they can fuck off.

baddox• 11 years ago

As the parent commenter said, they are helping fund infrastructure by paying their employees a lot of money, a portion of which is taxed.

retube• 11 years ago

Yeah but bonuses will be taxed at 50%. Corp tax is 22% so it's better they pay their staff more and report less profit.

maccard2• 11 years ago

Facebook reaps the rewards of the UK infrastructure. Facebook should behave as a responsible citizen and help fund that infrastructure.

Paying their employees an extra £96,000 (on average) per head isn't them being responsible? The money is being paid to UK employees who will (in theory) spend it in the UK. I'd have a problem if they did what Apple are doing in the US - sitting on wads of cash because it's too expensive to bring it back into the states, but this is a win for everyone. The money is redistributed back to the employees, and taxed appropriately, how is that a problem?

vidarh2• 11 years ago

People are assuming that the numbers reported are the result of using loopholes and that the reported loss does not accurately reflect how much money they make in the UK..

The reason the share bonuses are of some interest is that it seems odd to most people if they give away share bonuses worth 35.4m if they are genuinely losing that much money on the UK market.

Yes, it's possible, but the seemingly more likely explanation is that Facebook like most other large international companies are routing their revenue from the UK market through a more tax efficient separate corporate structure.

youngtaff• 11 years ago

Can't comment on the FB case but most share schemes are structured so the employee pays the minimum (if any) tax on the shares - typically by holding them for a number of years

DanBC6• 11 years ago

No-one expects companies to pay the full whack of tax. But Facebook is taking the piss. They need to be a bit careful, because they risk causing much tighter tax regulation in EU.

Citizens don't see this behaviour and think "well done, got one over on the government". Most citizens are infuriated by this scumbag behaviour.

And before anyone says "they're just obeying the law" -- we don't know that. They're clearly not evading tax, just aggressively avoiding it, but some tax avoidance schemes haven't been tested in courts yet.

tragic• 11 years ago

They need to be a bit careful, because they risk causing much tighter tax regulation in EU.

Don't think they've got much to worry about as long as Juncker's in charge of the commission at least. There will be huffing and puffing, but no blowing the house down.

exDM696• 11 years ago

Some background: Jean-Claude Juncker, the current President of the European Commission has served as the prime minister and financial minister of Luxembourg. During his regime, they effectively turned Luxembourg into a tax haven for international corporations, allowing them to transfer "license fees" of trademarks, copyrights and other immaterial rights with effectively a flat fee (ie. no taxes paid, just a one time not-a-bribe fee paid to the tax authorities of Luxembourg).

The primary export product of Luxembourg is banking and financial services. They also have some steel production and industry, but effectively without their shenanigans on tax evasion, the country would be bankrupt.

A lot of this has recently come into daylight in the LuxLeaks [0] scandal.

[0] https://en.wikipedia.org/wiki/Luxembourg_Leaks

kauffj• 11 years ago

I'm a citizen and I think that. Perhaps you describe most citizens, but certainly not all.

kybernetyk3• 11 years ago

I run my own business here in Germany and I'm all for getting every penny out of every tax loophole possible.

But then in my peer group I'm the only one who thinks that way. Most people would rather want everyone else to be as highly taxed as themselves than lower taxes overall it seems.

mahouse• 11 years ago

Then you are a bit selfish. Without taxes I don't know how you expect things to... work.

jkahn7• 11 years ago

They need to be a bit careful, because they risk causing much tighter tax regulation in EU.

I think this is going to happen anyway, as it's not just Facebook. Governments see it as a reduction in tax, and it's politically safe for a Government to do without getting voted out.

squiggy22• 11 years ago

'some tax avoidance schemes haven't been tested in courts yet'

Probably because the law isn't either fit for purpose, or clear enough for someone to litigate.

As far as I'm concerned, if they (are obeying the law) and getting away with it, then articles like these only expose that the government are the incompetent ones.

DanBC6• 11 years ago

Probably because the law isn't either fit for purpose, or clear enough for someone to litigate.

No UK tax authorities use courts as a measure of last resort. They persuade companies to pay unpaid taxes. See, eg, Vodafone who came to a deal. These bills were billions of pounds.

http://www.telegraph.co.uk/finance/economics/9330102/HMRC-cl...

Although see also this:

http://www.theguardian.com/money/2011/dec/06/hmrc-tax-deal-v...

etc.

It's very expensive to sue these massive companies. It's probably a good thing that deals are made to reclaim some of the tax.

chrisseaton• 11 years ago

some tax avoidance schemes haven't been tested in courts yet

This is saying that they're guilty until proven in compliance. I'm sure you do lots of things every day that haven't been tested in court yet.

paulojreis• 11 years ago

No-one expects companies to pay the full whack of tax.

I do.

rconti• 11 years ago

It depends on what is meant by "the full whack of tax".

If your tax bracket is 30%, nobody expects you to pay 30% of your income in taxes. No, that's the top marginal rate, and you have deductions, and so on. This could charitably be put in the same realm -- they're getting all of their loopholes that they're dubiously entitled to.

It's sort of like if a speeding ticket costs $200. But you know you can get away with speeding most of the time. If suddenly we had a perfectly-enforced system where you paid $200 every time you exceeded the speed limit, it wouldn't seem 'fair' even though it is, strictly speaking, 'fair'.

However, to cost the average person the same amount, the amount per offense should really go down if enforcement is perfect.

In the same way, the US corporate tax rate is insanely high, but the actual amount major corporations pay is insanely low.

amirmc• 11 years ago

"No-one expects companies to pay the full whack of tax."

Why? I don't understand why this is considered acceptable. I'm expected to pay the full whack of tax (income, VAT, etc), but somehow it's taken as given that corporations will pay 'less than they're supposed to'. How can we fix anything if this is the prevailing attitude?

Cakez0r2• 11 years ago

In this case, Facebook did pay the full whack of tax. The article implies they avoided paying corporation tax by paying out large bonuses, causing them to have been operating at a loss (on paper). If that is the case, then I don't think that's such a bad thing. All of their employees will still pay tax on their bonuses, so it's not like the tax payer is being completely robbed. At least their workers are getting a cut of the profit, rather than having it all go to Facebook's coffers and the government (in the form of corporation tax).

RegW• 11 years ago

Why?

... because we don't call out those that do, praise them and give them our custom.

mootothemax6• 11 years ago

But Facebook is taking the piss.

Exactly, they take it from "mild annoyance about the state of the world" through to full-on rage.

I'd like to know whether - annoyingly - even if they knowingly bought about huge tax reform, whether the short terms gains of doing this now would still make it worthwhile. Sadly, I can't see any way that it's not worth abusing whenever possible.

radu_floricica3• 11 years ago

Tech companies don't show profits as long as there's place for development. They're still paying tax on everything else, including renting offices, paying salaries and bonuses etc.

DanBC6• 11 years ago

paying salaries

Isn't that a tax paid by the employee, not employer?

Starbucks tried to say that they paid a lot in VAT, but that's a tax paid by the customer not the business.

Feoj• 11 years ago

In the UK employers have to pay a "National Insurance" Contribution on top of the employee's contribution.

https://en.wikipedia.org/wiki/National_Insurance

IanCal• 11 years ago

Well, I don't think there's a huge difference, the money is taken before people ever see it although some people will claim a bit back.

However, there is also employers NI which is definitely paid by the employer, at 13.8% over a low threshold.

garblegarble• 11 years ago

> paying salaries
Isn't that a tax paid by the employee, not employer?

It's technically both - there's an element of National Insurance tax paid by the employer and an element payed by the employee (then the employee pays income tax on the remainder). The core of your point is correct, though, the bulk of the tax paid as a result of salaries is taken from the employee

radu_floricica3• 11 years ago

Isn't that a tax paid by the employee, not employer

I don't know why people still fall for this. The government may say whatever it wants, but the value of the paycheck is market determined which means taxes are taken from both sides. Unequally, of course, depending on how (in)elastic work supply and demand are.

exDM696• 11 years ago

They're still paying tax on everything else, including renting offices, paying salaries

So is every other company operating in Europe, and they have to pay their corporate taxes. But the multinational corporations evade their corporate taxes and get an unfair competitive advantage.

A practical example: a hamburger and fries from a local franchise costs 2 eur (about 20%) more than one from McDonalds, because the latter doesn't pay their taxes to this country, using the same "license fee" trick as Facebook, channeling all of their profits through Netherlands, Luxembourg and/or Ireland.

These tricks are known with names such as "double Irish with a Dutch sandwich".

radu_floricica3• 11 years ago

That's a different case. I was simply saying _tech_ corporations often operate at a loss for a very long time. I'm reasonably sure Amazon didn't make a profit for decades, assuming it does now. This is not paperwork hand-waving, they're actually reinvesting all income, plus as much extra they can raise.

3dfan2• 11 years ago

What is the news here? FB was making a loss last year, so why should they pay corporation tax?

IshKebab• 11 years ago

They didn't make a loss. Read the whole article.

devit• 11 years ago

The UK subsidiary was apparently making a loss, but the company as a whole wasn't.

This might mean they shuffled money around to avoid paying UK taxes, i.e. they engaged in https://en.wikipedia.org/wiki/Transfer_mispricing potentially breaking the law.

ptaipale3• 11 years ago

Then the taxman can get them. They just need proof. If the case is clear, why don't they go and get Facebook for breaking the law?

Most likely because the case is not so clear: it is far from clear that they engaged in any transfer mispricing.

Marazan6• 11 years ago

The UK subsidiary made a "loss" whilst paying out millions of bounds of stock bonuses. Either Facebook UK is the most incompetently manged company in the world orrrrrrr...

fooster2• 11 years ago

The bonuses were taxed at personal tax rates, rather than coroporate. Furthermore, the personal tax rate is higher than the corporate, so why is this a bad thing again?

exDM696• 11 years ago

FB was making a loss last year

They don't make actual losses - they pay all of their profits as "license fees" to some offshore entity to get their accounting show no profits. This probably means Luxemburg or Netherlands where they have a personalized deal with the tax authorities and the taxation of immaterial property is very low.

In reality they made a shitload of money, and are using creative accounting to make it look like they made a loss. This is tax evasion, not making a loss.

jkahn7• 11 years ago

Global companies offshoring profits and not paying enough tax (in the eyes of many countries) was a hot topic at the last G20 summit in Brisbane.

This isn't limited to Facebook, as the article explains. The issue and background here is that when large companies operate globally, each country has its own local subsidiary, owned by the global entity. Money is made in each country by selling goods or services. How are the profits sent upstream to the parent company? By charging costs for goods; or license fees for services. As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't. This is also how companies shift profits to no- or low- tax jurisdictions. See: Apple and their large amounts of cash held outside of the USA.

With increased globalisation, this is an issue for many countries. In Australia, for example (where I live), the roll out and success of Uber means that the taxi company tax base will erode. If Uber shifts profits overseas, the Australian Government gets less tax but still has to provide the same level (or greater) services. Uber's a better service, we want it to succeed, but tax is needed for necessary services.

While companies continue to do this, the answer is information sharing between countries' tax offices and laws to ensure a certain amount of profits must stay on-shore, while not dis-incentivising multi-nationals from doing business in each country. As this already has political attention, I'd expect laws in most major countries to deal with this over the next 5 years.

But Facebook are taking the piss here.

smt885• 11 years ago

provide the same level (or greater) services

I don't agree with that in all cases, and I particularly don't agree related to Uber.

When I lived in NYC, I often called "311" to complain about taxi-driver misconduct. This was the only outlet, and you really only did it because you wanted to feel better. There were never any direct consequences that you knew of.

If you consider the decreased cost of operating the 311 service, as well as lower taxi-related crime, less drunk driving, etc., I'd guess that a government would spend less when Uber had replaced all traditional taxi services.

(You can also think of Uber as redistribution of wealth from wealthier to less wealthy, since riders will usually be wealthier than drivers. In that case, Uber makes tax revenue go up, since poorer people usually pay more in taxes.)

Edit: Clarified some language, since no one seemed to have understood anything I said the first time.

jkahn7• 11 years ago

That's not what I mean. I'm talking about what the tax money collected gets spent on by government - roads, healthcare, infrastructure, aged pensions.

If industry X was paying $100mm tax, and industry Y disrupts and replaces that, while paying only $20mm tax, the government needs to find $80 million to replace that tax shortfall.

Nothing to do with taxi related services...

blowski• 11 years ago

Uber can only exist in a society with a detailed and rigorously applied legal code, decent transport infrastructure, and wealthy citizens. I'm sure there are more requirements.

As Uber benefits from public spending on these things, they should also contribute to their upkeep.

nathanvanfleet• 11 years ago

You have a lot of problems with your argument.

If you have a local taxi company, you make tax money from that company. If it's at least in your country, you make tax money from that company. If the support employees are in your city/country, you make tax money from those people.

So if the company is not from your country, and their support/offices/profits all go somewhere else, it's a loss for you (as a city or country) because before you got to make more money from the local taxi companies. Which you would hopefully use to pay for different services (not sure why you think 311 is the only conceivable cost here).

And honestly, you think rich people pay more taxes? Sorry, it's just not the case. 1 person making 100x more than an average person is going to pay less net taxes and will buy fewer things (even if it's more expensive stuff) than 100 people.

sspiff2• 11 years ago

Global companies offshoring profits and not paying enough tax (in the eyes of many countries)

Also in the eyes of many citizens of those countries, not just the government trying to make the budget fit.

jkahn7• 11 years ago

Yes, agreed, which makes it much more likely that laws will get passed to collect this tax as it will probably have strong political and voter base support.

krotton3• 11 years ago

Well, in hypothetical laissez-faire capitalism taxes would not be needed to provide infrastructure - Uber would just have to pay its fees for driving on private roads (etc.). This would drive prices up, but fairly divide the costs between the roads' users. Although I must admit I have no idea how things could look with purely digital companies like Facebook. I can think of local ISP-s charging the company for allowing access to the website, but that would probably become just an additional earning opportunity for them, without any noticeable positive influence on the local population.

jkahn7• 11 years ago

That's theoretical, whereas government and corporations deal with realities.

100% capitalism isn't practical and is unfair (e.g, to the poor and sick). What is a fair way to divide costs for road usage: time of use, miles driven, emissions, cost of vehicle, ability to pay? It's not an easy answer, and many are practically unenforceable. Hence, tax.

And for the record: I'm generally capitalist by economic viewpoint.

pjc505• 11 years ago

This arrangement collapses into monopoly very quickly. Facebook would bypass or buyout the local ISPs.

(A world of purely voluntary contracts and no compulsory purchase would never have got past the development of the railway or telegraph, so the whole prospect is ludicrous)

afarrell• 11 years ago

But you still need taxes to pay for courts, police, armies, etc.

Unless you are arguing the An-Cap thesis that these functions can be conducted by private entities. If you are, then congratulations: we're already living under your preferred system! It is just that for most territory, one company has seized monopolistic control of the territory, has called itself "the government", and no other companies have been formed to challenge it. Exceptions such as the West Bank where two companies are competing do exist.

exDM696• 11 years ago

Apple is a particularly difficult case, because they control every link in the chain of supply from manufacturing to retail and pay less than 1% effective corporate tax from their profits. From every step of the supply chain.

It is very difficult, if not impossible, to compete with Apple without having a similar end-to-end control of manufacturing to retail. If a company has to purchase their products from a manufacturer or sell their product to a 3rd party for retail, they are losing to Apple because that flow of money can't be hidden from the tax man.

Europe is currently facing major financial issues and a significant portion of this is that money gets funneled away to the US (or offshore accounts of US corps) without the fair share of taxes of their profits left here.

jkahn7• 11 years ago

It's certainly not a level playing field when competing against a multinational like Apple. It's also hard for countries to enforce competition rules (e.g. Anti-dumping)..

guard-of-terra5• 11 years ago

Apple sells a huge number of physical devices - phones and tablets. They created a new market, and now governments are able to collect VAT and sometimes customs tariffs on all those smartphones. Why not let Apple have what's left?

speleding• 11 years ago

The corporate tax rate in the US is actually higher than in many EU countries. The reverse is actually true, US companies choosing to base their "head quarters" in Ireland and the Netherlands.

raverbashing4• 11 years ago

Well, how much Apple money stays outside of the US because it was paid there?

Also, how much VAT and other taxes are charged in an iPhone sold in Europe

Same for Facebook, their ads generate VAT. Their employees there pay income tax.

lsaferite4• 11 years ago

As much as the minuscule corp tax bills infuriate me, my logical half laughs and says income tax is silly, just use sales tax.

I know we'll never pass something along the lines of FairTax, but I daydream about it all the time. And yes, I've heard all the arguments against it and I still think it's a much better solution than taxing income.

tobltobs7• 11 years ago

First we were told to be nice to the rich and give them tax reduction, because we will be all happy for the trickling down pennies. And now we are supposed to give the cooperation tax relief because there is money trickling down from the employees?

mattmanser• 11 years ago

If I didn't buy an iPhone, I'd buy a different phone. The VAT would still be there. If I didn't use Facebook I'd be using a different image sharing service, or chat service, or whatever. The VAT would still be there.

Because I have a budget to spend on entertainment, and various companies compete for that budget.

We pay those taxes, Facebook/Apple doesn't 'generate' anything, that money would be spent on a different entertainment. We pay income taxes, if we didn't work for Facebook/Apple, we would have to find a different job, perhaps start our own company, etc.

I want to make this super clear. Those taxes, including income taxes, are our contributions, not Facebook's. The citizens are generating that money. If Facebook didn't exist, there would be a company filling that void with an alternative entertainment which VAT would still be charged on.

Now, on the flip-side, it's not entirely zero-sum and Facebook does increase the overall wealth. They are generating new markets, new growth, etc.

But is it by the percentage of money its extracting from the local economy? Of course not. And worse still, that money's sitting in an offshore account somewhere, not even flowing back into the US economy, because they're waiting for a tax break. So instead of doing what it's supposed to do, which is spur more growth, it's doing the worst thing it can, which is being excluded from the world economy.

SixSigma2• 11 years ago

You could call it "increased globalisation" but abusing transfer pricing was invented by the Vestey Brothers in the late 19th Century when they began importing beef from Argentina. They also invented the abuse of the offshore trust.

The legislative arms race that evolved was the UK tax office trying to tax the Vesteys, who went on to be one of the UK's wealthiest dynasties.

More info here: http://m.francisclark.co.uk/news-views/blog/the-vestey-broth...

Plus ça change, plus c'est la même chose

tomelders4• 11 years ago

Great summary, I'd like to add

while not dis-incentivising multi-nationals from doing business in each country

I'd argue that the incentive to do business in several countries is the profit they're making in those countries. No company is going to walk away from a company because they're being charge x% of tax on the money they earn. They might say they will, but they may as well be saying this...

"Because I don't want to pay you $1, I will reject the $5 this other person is going to give me."

refurb6• 11 years ago

Return on investment weighs heavily on most business decisions. If I invest $X, by the end of the year I'll get $X*(1+return%).

Since companies can't invest everywhere at the same time, they prioritize investments. A higher tax rate might mean investing in that country later, as there are other investments than have a higher immediate return.

I could see a situation where an investment was profitable, but so marginally profitable due to the tax rate that the investment was delayed effectively forever.

mrweasel• 11 years ago

As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't.

I've only seen one really effective way around that suggested, but it's not without it's drawbacks. If a country taxes each sale of a service or product, then it's no longer possible to funnel money out of the country. It effectively eliminates companies that operate in a country for years with a fake lose.

The drawback is that it will potentially cost jobs and close business that could be profitable in the long term.

sneak• 11 years ago

Necessary services?

“There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” —Heinlein

funkyy6• 11 years ago

Simple 1% revenue tax on companies with revenue of more than $15 million would fix the issue. No other taxes, just revenue one, no tax credits, no refunds. No hiding costs, no going offshore, no creative accounting. One tax on all revenues that will hit your account. This would also help to cut out all the middle man driving prices up and make the logistic chain quite small.

Some countries want to experiment with this starting with foreign corporations, we will see.

joesb2• 11 years ago

์So every broker company who makes profit on 0.05% transaction fee is going bankrupt, and no more high-volume low-profit business.

crazy1van2• 11 years ago

Simple 1% revenue tax on companies with revenue of more than $15 million would fix the issue.

What country can levy this tax? Large companies like Apple have operations in lots of countries. Do they have to pay each one 1% of their raw revenue?

1123581321• 11 years ago

That would cause an immense consolidation as the 1% would be applied to the revenue of every country in a manufacturing/logistics chain and add up to a sizeable percentage of the final cost. More companies would take the Apple route and do as much as possible so that there would be fewer 'revenues' to tax per good made/service provided. Perhaps that is your goal.

e12e• 11 years ago

You're saying I need to divide my $25 million revenue corporation into two?

phlo5• 11 years ago

Stories like this make me question if corporate tax even makes sense. However well designed, a tax code with today's complexities is going to have holes. If a savings of even one per mill may mean millions, corporations are going to spend insane amounts of money to hire the best experts to use every last loophole.

Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything:

- Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out.

- Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven).

- A consumption tax (VAT) could be added, although this doesn't seem necessary to me.

Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?

jos3000• 11 years ago

The big problem with this is that, under a simple tax system, if a government wants to increase it's tax revenue it is extremely easy for voters to understand what is happening. Governments prefer to make complicated tax laws because they are easier to spin.

brandonmenc• 11 years ago

Why aren't tax systems as simple as that?

cruft + tax payers writing law + tax collectors writing law

kuschku11• 11 years ago

So, in your system, how would a corporations profits be taxed? You have shown nothing like that, really.

And a direct property tax is also not a good idea, as then you tax people for having property, not for using their property.

legitster• 11 years ago

Someone put it best when they said "corporations may not have a heart, but they don't have a stomach either". Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets. A tax on corporations is directly passed through to employees, customers, investors etc.

From what I understand, the actual proposed replacement for the corporate income tax is much simpler: eliminate it and replace it with a much more comprehensive capital gains tax. Then require companies to be much more forward with paying dividends.

Cookingboy2• 11 years ago

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S.

Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.

This is a great idea to increase the wealth gap between U.S. and the rest of the world, for good or bad. Considering how many international conglomerates are U.S. based.

Cookingboy2• 11 years ago

Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.

This is a great idea to increase the wealth gap between developed countries and the rest of the world, for good or bad. Considering how many international conglomerates are American, European or Japanese.

Developing countries wouldn't stand a chance this way.

Tsagadai• 11 years ago

A much simpler tax system would be to tax everyone like hedge fund fees. You pay 2% tax on all assets and 20% on profits those assets generate. Regardless of asset type (if it is worth money and can be traded, it gets taxed). Ditch everything else (especially regressive taxes like VATs) and keep a progressive income tax. This 'everyone' is individuals because someone, somewhere owns the assets.

Note that those are the pre-2008 hedge fund fees and the fees are presently less than that.

TomGullen6• 11 years ago

TIL we pay 10-20x more corp tax than Facebook.

Sometimes I feel like a fool, but we've always said from day 1 try to do things as honestly as possible which I'm quite proud of, but there really doesn't seem to be much practical upside apart from not being outed and shamed.

First world problem I guess, at least we're turning a profit.

It is starting to make me a bit bitter though. For example, we've spent a LOT of time making sure we file and pay the full VAT due on all our sales which is insanely complicated. Then we suffer further with the new VAT Moss rules which are aimed at targeting these big businesses who are avoiding it as best possible, but the end consequences being an even bigger burden for small businesses like us.

Makes me wonder if we decided to exit if we could get a higher multiplier. Firstly we represent a reduced risk to the buyer, and secondly the buyer might see it as opportunity to absorb us into their accounting practises which would make us significantly more profitable overnight. I guess that is a potential benefit, but the idea of it ending like that doesn't sit comfortably with me.

jkahn7• 11 years ago

You're not a fool, you're just not a multi-national with the ability to legally avoid/minimize tax.

TomGullen6• 11 years ago

Along the way we've been offered ways to get around this and that which we've politely declined. Most obvious one being put your HQ in some country you've never been to in your life, we'd save buckets.

Also, if you get down to the metal with VAT there's a lot of ambiguity (opportunity).

My experience is that scale is not a prerequisite for it being economically beneficial.

bduerst6• 11 years ago

Pretty much. Only once a companies' net income reaches a certain level does it start to become beneficial to play the international tax game.

SmellyGeekBoy4• 11 years ago

I'm a one-man-band and I paid about double the corporation tax Facebook did in 2014. My turnover isn't even high enough to register for VAT. Really makes you think!

TomGullen6• 11 years ago

Just FYI, when you do need to register for VAT make sure you check out the benefits of Flat VAT, for us it was significantly more economical then regular VAT registration.

I'm constantly surprised how many accountants don't seem to even make their clients aware of this option.

catshirt• 11 years ago

it's misguided to call tax practices like these dishonest because it puts the blame on Facebook, who is operating legally in the system they are provided.

the alternative is that they knowingly pay more tax than the law requires of them. which is ridiculous.

don't hate the player, as they say...

saiya-jin4• 11 years ago

this is true in scenario where these massive corporations are just passive bystanders, obediently following all new tax laws that come up daily. the reality is, through networks of lobbyists, they put forth laws with loopholes that allow these practices.

i am not accusing facebook specifically, any and all multinationals are guilty in a similar way, be it banks, procter&gamble or newest computer fad beyond-startup company.

and of course there is the moral aspect - everybody can see from raw numbers how utterly immoral behavior this is. in a world where financial crisis didn't end as much as it became new norm.

vijayr• 11 years ago

It is not just the tax code - one can be honest in everything, but the most likely result would be the person is left behind and becomes bitter and unhappy. Because others will break, it at least bend the rules if they can get away with it.

In this case it kinda becomes a competitive advantage - all things being the same, if one company does "creative" accounting and the other doesn't, chances are the latter can't compete effectively.

Th worst in all of this is that the general public views these companies as smart for exploring loopholes rather than getting annoyed with them.

None of this is to say that one shouldn't be honest. Just be aware of what it costs to be honest, in a system full of loopholes

pdabbadabba• 11 years ago

Note that the article, as I read it, only refers to UK taxes. Presumably Facebook also pays taxes in other jurisdictions. (Also note that the headline refers only to corporation taxes. Facebook will also be subject to many other sorts of taxes in the U.K. and a multitude of jurisdictions.

This is not to say, though, that Facebook on the whole pays its fair share of taxes. It probably doesn't, but a person can't draw many reliable conclusions about this on the basis of this article alone.

mrkmcknz• 11 years ago

The UK press seems to have a field day when it comes to multi-national corporations not paying corporation tax.

We will no doubt shortly have a number of MPs telling us how unacceptable this is and that Facebook need to start paying up.

This all irks me a little.

362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.

Then we can look at those 'stock' bonuses that much of the article seems to point towards. There will likely be capital gains tax paid by employees on the sales of those assets down the line.

The UK has seen a strong economic recovery and remains a global financial centre and the business friendly tax policies of the UK likely contribute heavily towards this.

If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.

Marazan6• 11 years ago

If they hold them for 5 years there is no Cap Gains tax to be paid on the shares.

Arguing that the tax employees pay should be taken into account when calculating a companies tax provision lacks merit. That's employees tax not the companies - this is especially true for companies such as Starbucks where if they were not monopolising high street space by abusing the tax system and small local coffee shop would happily take their space in a fungible manner meaning the employee tax payments would still take place and there would be no net loss for Starbucks not existing.

ropiku2• 11 years ago

The cap gain is only paid on the profit made when selling. RSUs are taxed as regular income when they are awarded. Most likely the employees are high rate tax payers so it comes out at 40-45% tax + National Insurance.

drited2• 11 years ago

'If they hold them for 5 years there is no Cap Gains tax to be paid on the shares'

Why not?

bkor2• 11 years ago

That's why it has to be done across many countries so global companies cannot play one country against another. Your assumption that there are only two options doesn't apply.

switch0072• 11 years ago

362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC

Let's not pretend all 362 Facebook staff are paying tax via PAYE.

100timesthis• 11 years ago

maybe stupid question: do you expect a lot of fake contractors or there is another way? Because if they are contractors they wouldn't be part of those 362 in staff right?

robk2• 11 years ago

I'd be happy to pretend that. Most of Facebook UK staff are actually employed here as high value employees (engineers, sales). I'd be very surprised if there were many contractors here in the UK.

crdoconnor2• 11 years ago

More trickle down economics!

Is it 1992 again?

domfletcher• 11 years ago

The thing is that is the employees that pay the the income tax _not_ Facebook. Facebook (and others) are still not paying the taxes on the the income they earn from operating in the UK no matter how many people they employ at high salaries.

The choice you present is a false one, the multiplier productivity effect that Facebook employees gain from operating in London as opposed to Dublin far outweighs what Facebook would end up paying in corporation tax under a more reasonable system.

marrs9• 11 years ago

You forgot the VAT that Facebook's UK clients have to pay, the VAT Facebook have to pay on their expenses in the UK, the council tax that they have to pay on their offices, the pension and NI contributions they have to make, etc, etc.

At the end of the day, they aren't a UK corporation, so why should their corporation tax by high?

To be honest, it's hard for me to really form an opinion on this when the information provided by the media is so superficial. For that reason I tend to share mrkmcknz's sentiment. It all smells too much of the kind of trolling that's institutionalised in the media now.

s_dev• 11 years ago

Do you think they'd pay more or less tax in Dublin compared to £5k? Irelands 12.5% seems very reasonable considering its so close to its effective rate. France, Britain and Germany all allow massive write offs and loop holes that mean their effective rate is multiples lower than their stated corporate tax rate and this story will be forgotten by the Brits, Germans and French who'll turn around and repeat their condemnation of Ireland as a cheap tax haven when negotiating EU funding.

Starbucks get away with the same thing. Amazon intentionally doesn't turn a profit and so evades this whole situation altogether. Anyway Facebooks EMEA is already in Dublin.

rmc8• 11 years ago

It's always funny when Brits complain about foreign tax havens. The UK is a massive tax haven, with oodles of little overseas territories, or Isle of Man, or the Channel Islands.

exDM696• 11 years ago

Irelands 12.5% seems very reasonable considering its so close to its effective rate.

Very little of the actual profits of Facebook are actually subject to the 12.5% corporate tax of Ireland.

In a European corporate tax evasion scheme such as Facebook's, there's typically four to five legal entities in two or three countries. The branch making the actual profits (e.g. Facebook UK) pays their profits as "license fees" to an entity Netherlands or Luxembourg that has a flat-rate tax deal. This money is then transferred to the Irelands, where it stays for a few milliseconds before it is wired over to another corporate entity in NL/LUX ("license fees" again), subject to a flat rate fee, and then through ownership deals gets transferred back to Ireland. This trick is called the "double Irish with a Dutch sandwich", and there are dozens of similar, widely-employed schemes.

If this money is actually needed in the US, it gets funneled through one or two hops in Bahamas, Bermuda or Cayman Islands or so.

The net result is not 12.5%, more like (12.5%)^2 - (flat rates paid in NL/LUX). Effectively down to a few percent.

CraigJPerry• 11 years ago

It is right of the press to point out egregious transgressions.

EDIT for brevity.

toyg• 11 years ago

relocating to somewhere like Dublin

Afaik Facebook is still overwhelmingly based in Dublin, employing three times as many as in the UK. They likely hire in the UK the bare minimum they really need. So yeah, they've already "relocated" really.

This is the same for pretty much any European corporation, btw. Anyone who could leave for cheaper shores, did so in the '00s. What is left are the essential crews strictly necessary to the job of tapping one of the richest consumer markets on the planet.

The "employment threat" is basically toothless nowadays anyway, because "new economy" numbers are ridiculous in the great scheme of things -- 350 jobs won't change much of anything.

notahacker• 11 years ago

I don't think it's advocacy of "aggressive taxation policies" to argue that the corporation tax bill for a profitable multinational earning millions in UK revenue ought to be higher than the income tax bill for an individual person on the UK average wage. YMMV.

How many of Facebook's 362 UK staff would be unemployed for any significant period if they relocated to Dublin? How many would instead be adding value to a company that paid 20% corporation tax, whilst paying similarly high taxes on a similarly high salary?

marrs9• 11 years ago

I don't understand what you're arguing for.

If Facebook shut down UK operations then, for starters, Facebook would be paying no tax at all in the UK and Ireland would gain the difference.

If the Facebook UK staff relocated to Dublin then the loss to the UK economy would be exponentially worse.

mootothemax6• 11 years ago

362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC.

Why should Facebook get to enjoy an advantage over 36 companies employing 10 people each at a similar average salary?

If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.

You'd prefer every large company to be based in the UK and not pay corporation tax?

Of course not.

Personally, I think we're long overdue another huge waste like DeLorean coming along.

marrs9• 11 years ago

    Why should Facebook get to enjoy an advantage over
    36 companies employing 10 people each at a similar
    average salary?

Let's turn it around. How would you go about taxing a corporation that didn't make much profit last year

tomelders4• 11 years ago

I utterly reject this argument

362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.

First of all, that's Facebook employees paying tax. Not Facebook. That's their money that they are taxed on and they pay it.

Secondly, no one is asking for Facebook to pay tax on nothing. They should pay it on profits. It was tax payers money that built the Great British Telecommunications Infrastructure that Facebook 100% depends on for it's operations here.

If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.

No one is going to give up all the money they can earn in a country that has one of the lowest corporation tax rates in the world. Facebook is not going to convince it's key employees to leave Britain, uproot their families and go live in the desert or china. Any threat by a company to leave one of the strongest economies in the world is a pathetic bluff.

marknutter2• 11 years ago

First of all, that's Facebook employees paying tax. Not Facebook. That's their money that they are taxed on and they pay it.

Why is this distinction even relevant? Facebook then needs to pay its employees more to make up for the difference. No matter who the government taxes, everyone involved will shift their habits to compensate for it.

scanr2• 11 years ago

First of all, that's Facebook employees paying tax. Not Facebook. That's their money that they are taxed on and they pay it.

I'm reasonably confident that HMRC is entirely happy with corporations choosing to pay their staff more (and have those salaries taxed appropriately) rather than paying their employees less and paying corporation tax on the profits.

bagacrap• 11 years ago

That's their money that they are taxed on and they pay it.

The only reason Facebook doesn't have to pay taxes on that money is because they gave it to their employees (so it counts against profit). The money comes from FB profits, briefly goes to the employees, then to the government. Hence, the government is getting a cut of the money FB is making. What's the problem?

kuyfiuyg• 11 years ago

I'm asking someone who is more knowledgeable than me on this topic. What would happen if you replace all (most) tax with VAT?

That would mean everywhere there is a real transaction, that generates greater value, that is where the tax is. It would also make it impossible for big companies to do tax evasion - since you limit the effects to the 'leaves' of the tree that is the economic system, you can catch the money before it escapes put the company 'tree' structure, out of the reach of the state.

vidarh2• 11 years ago

The issue with VAT is that as usually applied it is an extremely regressive tax. Poorer people spend a far higher proportion on their income on purchases that have VAT applied. If more categories of basic goods were zero-rated or exempt, or if other mechanisms were used to make the VAT burden less regressive, then it might be viable.

lagadu2• 11 years ago

That's how most of Europe does VAT: food, cultural and other essential products enjoy a very reduced VAT rate in many (but not all) countries here[1].

[1] https://en.wikipedia.org/wiki/Value-added_tax#Tax_rates

lsaferite4• 11 years ago

The FairTax proposal in the US addressed this with a "prebate" that was mailed out to every person (not sure the criteria) at the beginning of the year. This was a check that covered the taxes on base (poverty?) level spending. This was meant to remove the regressive taxation effect.

iaskwhy• 11 years ago

I believe that's the US proposed FairTax, isn't it?

https://en.wikipedia.org/wiki/FairTax

dgoldstein0• 11 years ago

Part of the problem though is that most businesses pass VAT tax on to consumers. Meaning that VAT tax essentially allows businesses to get their customers to foot the tax bill, and that everyone pays taxes corresponding to their consumption instead of their income. Usually you want the lowest earners not to have to pay much (if anything) in taxes, and VAT taxes don't allow for that.

ajnin2• 11 years ago

VAT is the most unjust tax there is. People with low income spend it on things like food, clothing, housing, entertainment, that are all subjected to VAT, whereas richer people have access to the stock market, investment, and tax lawyers, and pay relatively less VAT. VAT is effectively a degressive tax, if you leave only VAT then you accept a system where the poor pay for the rich.

However this is already the case in Europe because the VAT rate is so high. For example for France, tax revenue in 2014 was 74B€ of income tax, 39B€ of corporate tax, and 139B€ of VAT. I'm guessing this is a political game where you have to keep income tax high enough so that the inequalities are not too obvious.

bensummers• 11 years ago

You don't pay VAT on "essential goods", eg food, clothing, rent, etc.

Of course the rules are a bit fool about what is essential, and VAT is still a terribly regressive tax.

rmc8• 11 years ago

What would happen if you replace all (most) tax with VAT?

The poor would pay considerably more of their income as tax than the rich.

And yes, there are ways to do tax evasion with VAT. There was a court case in the UK about whether Jaffa Cakes were a cake or a biscuit (because there are different VAT categories)

ahallock2• 11 years ago

Then don't charge the poor for VAT.

mootothemax6• 11 years ago

What would happen if you replace all (most) tax with VAT?

I'd imagine a large number of people would form sole-trader companies and put every last expense possible through it.

A boon for accountants!

pjc505• 11 years ago

I'd prefer taxation on land value, property, and especially a property tax on valuable IP.

pja• 11 years ago

So they paid next to no corporation tax. Meanwhile their employees will have paid a stack of income tax & the new rules on VAT should mean that all Facebook Ad sales to UK customers are subject to UK VAT.

I don’t think the UK is being shortchanged all that much. When Google/FB et al were able to shift Ad sales to low-VAT regime holding companies, that was definitely taking the piss. This? Meh.

JupiterMoon5• 11 years ago

This argument is not valid. Yes they are paying VAT and income tax. So what? They should also be paying corporation tax. A start up competitor would have to pay VAT, income tax and corporation tax.

ghiculescu• 11 years ago

Not if that competitor made a loss the way facebook has here.

yrro2• 11 years ago

But they are playing Corporation Tax. To put it another way... what additional tax do you want them to pay that they are currently not paying?

gedrap2• 11 years ago

I don't have a hope that this tax issue will be solved any time soon. There are hundreds of billions dollars involved globally, and when you are talking about that much money... It's very hard to do much about it, let's be realistic.

I quite agree about the attitude expressed here (Let's Just Give Up on Taxing Big Corporations, http://www.bloombergview.com/articles/2015-10-08/multination... ). It's not fair but there's not that much that can be done.

bkor2• 11 years ago

That would give them a permanent unfair advantage over small and medium sized companies. In my country such companies employs loads of people.

gedrap2• 11 years ago

But they have that advantage already, they can afford to do things as described in the original link. They employ a bunch of accountants, offshore experts, etc.

I am not exactly sure if similar means as described in the article I've linked would change much.

3dfan2• 11 years ago

The article is ultra thin on informations. What is the news? That FB UK transfered profits out of the UK to avoid corporation tax?

Is that a problem? I honestly don't know. What is the intention of corporation tax?

I would think that the "who uses our streets and is protected by our police has to pay for it" tax is VAT. How is FB doing in terms of VAT?

elicox• 11 years ago

I don't know if is the case of Facebook, but in general this is the story of most of tech companies, all are located in Ireland where they pay so much less taxes, and in rest of EU countries all this big companies pay this quantities or in the worse case the government return money.

EU is totally broken, one market with one tax per country; Obviously, all companies go to the country with less taxes. And the different is not 1% or 2% is like 10% or more.

rmc8• 11 years ago

all are located in Ireland where they pay so much less taxes

Another reason for Ireland was that there was a very lax view of European Data Protection law there.

bnastic• 11 years ago

My one-man-show consultancy pays far more than that in UK corporation tax. Of course that pisses me off, regardless of how you paint this whole tax avoidance scheme.

Someone said that "paying tax is for poor", and this goes a long way to support it.

scanr2• 11 years ago

An alternative point of view: if your one-man-show consultancy was not IR35 compliant, paying corporation tax instead of NI and PAYE (i.e. salary) would be a sign that you're avoiding tax.

stegosaurus• 11 years ago

Re-posting my comment from the Guardian thread that came up earlier ( https://news.ycombinator.com/item?id=10371728 )

Corporation tax in the UK is payable on 'profits subject to corporation tax'. In laymen's terms this is roughly equivalent to to accounting profit.

Employee salaries, bonuses, etc are generally deductible; if you pay me 50K, that's 50K out of your bottom line.

The employees in question likely pay a variety of taxes including but not limited to the standard income tax. In an extreme scenario (recent graduate + highest tax band) that could be 61% rate.

(For comparison, the 2015 rate for Corporation Tax is 20%; so as far as the Exchequer is concerned, a salary payment is preferable, at least in immediate terms).

In summary, I think there's a discussion to be had here about abuse of taxation frameworks but the headline here is bait; the bonuses are irrelevant, any oddities regarding transfer payments etc. are what should be focused on.

edit: My position on taxation in general is that we should be focusing on Capital Gains Tax (taxes the gain on appreciation of assets such as shares) and Income Tax (taxes income from sources such as employment, share dividends).

Taxing corporations seems like it can only ever be arbitrary at some level, because they don't.... 'exist', for lack of a better term. They can be ephemeral, relocate, etc.

arethuza2• 11 years ago

Shareholders are generally pretty keen on the "existence" of a corporation when it comes to limited liability.

RealGeek• 11 years ago

and when it comes to lobbying, politics and religious rights... Corporations suddenly become people.

TomGullen6• 11 years ago

What about scrapping corp tax, and replacing with a higher VAT rate?

petercooper3• 11 years ago

The public would go mental. VAT is seen as being most onerous on low earners.

Something like a very low "turnover tax" for businesses could potentially work though.

We take about £40bn in corporation tax each year. Total business revenue in the UK is around £3.2tn, so a 1.25% turnover tax would cover it.

tonyedgecombe4• 11 years ago

I've read several times that the government doesn't think it can raise VAT much higher because it would start loosing money from an increase in excise fraud.

BenoitEssiambre• 11 years ago

Exactly, it makes little economic sense to tax corporations. It makes much more sense to tax the people who own corporations when they take the money out of them.

Though there might be some practical reasons to tax corporations a bit. It might be easier to prevent tax evasion when you take the money at the source and it might lessen the amount of personal purchases being passed as business expenses to avoid taxes.

3pt14159• 11 years ago

The problem with this is that the shareholders may be outside your country. It is pointer management. You can't trace it down 100% of the time. If you want an easier tax policy focusing on things that can't be hidden like land, highway use, pollution, etc is much easier.

snorrah2• 11 years ago

Shameful. Just shameful. I don't care how it gets sugar coated, if you claim to be working for the good of humanity (in facebooks case by connecting people together) and then you loophole yourself out of paying taxes, you are morally bankrupt.

ams6110• 11 years ago

If the tax law allows it, they have no reason to pay more than they do. To do so would be not in the interests of their owners/shareholders.

If you have a problem with tax "loopholes" then fix the tax law. Don't blame a business for paying only the tax it is legally obligated to pay. Would YOU pay more taxes than you have to?

DanBC6• 11 years ago

Would YOU pay more taxes than you have to?

Most people pay more tax than they need to because they don't have access to devious accountants who create excessive tax-avoidance schemes.

Most of these schemes are neither normal tax planning nor a bit of tax avoidance. They are aggressive tax avoidance that exploit the regulations in weird ways. They're legal, but only because the regulations were malformed (and will get re-made) or because the schemes haven't been tested in courts.

And the way UK tax authorities work is rightly to use courts as a measure of last resort, preferring negotiation instead.

throwaway20487• 11 years ago

guess who lobbies the government for these type of loopholes to begin with?

Cakez0r2• 11 years ago

I wouldn't be so quick to condemn them. If you were running a business that had earned millions in profit for the financial year and were faced with the option of A) distributing it all out to your employees in the form of bonuses (which, of course, would be taxed) or putting all the profit in the bank and paying a huge tax bill, which would you pick? This seems like a good example of wealth trickling down to me, but it's painted as tax evasion.

refurb6• 11 years ago

Why do people get mad at the company for not paying more in taxes? I presume they are following the law and paying what is required?

Why not get mad at the politicians who created the tax code?

1stop• 11 years ago

... Is this like a "Why do people get mad you have to sit at the back of the bus, it is the law after all?" kind of argument?

snorrah2• 11 years ago

Oh believe me, I'm plenty mad at UK politicians :) But since our current government gained a majority while only actually taking around 37% of the vote, I'm pretty sure we're stuck between a rock and a hard place in actually getting the system changed.

Gonna quote a post from reddit:

"Facebook does do things honestly & by the book. It just so happens that they have a presence in multiple countries around the world. Due to this Facebook Uk® must pay massive amounts to lease the licenses for software & intellectual property from Facebooks conveniently placed HQ in the lowest tax capitals in the world. Doing so at a price Facebook themselves chooses perhaps based on quarterly earning estimates runs at an amazing cost almost siphoning off all profit. So the resulting entity which owns all the IP / leasing then pays tax in the country it is in on its earnings. Now they may be incorperated in a place with minimal corporation tax & simply keep a post office box there, but I assure you that's entirely the focus of their operations & is absolutely not just in place as a tax avoidance tactic. Now if you dislike this you can absolutely tell them it's unacceptable. I'm sure politicians will be telling them off and using them to get press for .. oh 7-14 days until people move on & forget about it. At which point those same politicians won't change anything which impacts the practices at all."

rmc8• 11 years ago

"We have to ensure our taxes are simple to eliminate loopholes, and that taxes are low to increase our competitiveness, so that companies choose to base themselves here."

Pick one. You can't have both.

nr152522• 11 years ago

"It means Facebook's UK corporation tax bill was less than the tax the average UK employee paid on their salary."

"The average UK salary is £26,500 on which employees pay a total of £5,392.80 in income tax and national insurance contributions."

Corporation tax and personal tax are not the same thing so I don't see how they can be compared. In fact, in terms of taxes paid to HMRC, they would have been paid more tax overall.

However, considering they made a pre-tax loss, they should have probably reviewed those payouts of which I assume was shared amongst those on top.

fooster2• 11 years ago

If they reduce their profit to zero by paying out to the employees this means they don't have to pay any corporate tax, and the employee has to pay income tax. The personal income tax rate is generally higher than corporate, so why is this a bad thing?

JupiterMoon5• 11 years ago

The thing that large corporations should remember is the the UK is one of the few countries in the world that can pass retrospective legislation and then enforce it (this has happened on tax issues as recently as the 2000s). At some stage a UK government is going to claw back this money and I think it won't be pretty for anyone. (NB I fundamentally don't agree with the concept of retrospective legislation I'm merely saying the UK can do it.)

shrikant• 11 years ago

I found this ex post facto-ing, so I dug up a relevant link: http://news.bbc.co.uk/2/hi/business/8496921.stm

The law in question is the Finance Act of 2008.

dpatru2• 11 years ago

In terms of providing social value, Facebook employees far surpass any government's employees. In just a few years Facebook has revolutionized how people connect with each other, whereas governments have, in general, barely been able to maintain the accomplishments of previous generations. This despite the fact that government generally force people to pay about one fifth of their labor, whereas Facebook offers its services for free. Governments should wither and die in favor of more socially beneficial organizations like Facebook.

SuddsMcDuff• 11 years ago

You're taking a highly subjective view and presenting it as fact. That Facebook is a "socially beneficial organization" is extremely debatable. I would argue that Facebook has actually had a detrimental effect on social cohesion.

dpatru2• 11 years ago

Facebook offers free services to ordinary people to help them stay in touch with their friends. It also offers a paid services to businesses to help them communicate to actual and potential customers. Anyone who uses Facebook can stop at any time. People use Facebook by choice.

In contrast, governments are violent organizations specialize in coercion. Governments extract their revenue by force or threat of force and use their revenue to fund institutions and projects that people would not pay for voluntarily. Governments maintain power by direct force (police and military), by deceit and misinformation (control of the money supply, compulsory education), by monopolizing necessary institutions and services (dispute resolution, security), and by appealing to people's greed and envy. It is nearly impossible to opt out of government services, especially in the sense of not paying for them (taxes).

inthewoods2• 11 years ago

FB is playing the game that corporations play all over the world - global tax arbitrage. They shift operations, losses and profits to different countries based on tax policy.

The similar thing happens here in the US at the State level. It isn't uncommon for large companies to pack up and move their operations to lower tax States, or to actually bargain with individual States over who will give them the best deal. Here in Massachusetts, Fidelity packed up and left for North Carolina and Texas - they found it was cheaper to move employees than pay the taxes.

This will likely continue as long as different countries (and States) have different tax schemes - and that isn't going away anytime soon.

Soon we'll probably have a renewed call for a lower tax rate here in the US for companies to repatriate those revenues.

ptaipale3• 11 years ago

Tax policy, but not just tax policy. Companies also place their operations based on cost (total operating cost, including logistics costs and whatever). For instance, it is not a surprise that so many computers and smartphones are made in China.

inthewoods2• 11 years ago

Completely agree - but if you look at these global companies, many just locate their headquarters in tax-free zones while not having a substantial amount of employees, or engage in tax avoidance strategies like the Double Irish. But you're right - it's not typically only for tax reasons.

samfisher83• 11 years ago

Instead of corporate tax the employees are being charged individual tax. I think eventually the government gets the money.

ryanmac• 11 years ago

"It's about the spirit of the law versus the letter of the law. At the end of the day tax evasion is illegal, when you're deliberately setting out to not pay your tax by hiding your money,"

This is so wrong. Close these loopholes so a million dollar accountant and a regular accountant play by the same rules.

It's as if a soccer didn't have an offsides rule and then some complained about teams taking advantage of offsides. Change the law and move on. Don't complain about companies exploiting a huge hole you created.

DrNuke• 11 years ago

The political point here is that big corps are unfairly draining a lot of money out of the local systems they operate in. This leads to reducing services locally, starving the unemployed and the poor and straining middle classes big time. Exhilarating amounts of money are funnelled and stockpiled under the name of unaccountable entities named Apples, Googles etc. against many millions poor that wil need basic income to survive sooner than later. Is this the world we need, really? The principle is simple: local branch entities pay taxes locally just as any local small business.

buro9• 11 years ago

I worry about the drip-drip-drip of information that the British public can (and probably will) use to end up at the conclusion that leaving Europe in the future will be the silver bullet to all of the issues.

Immigration from Europe > Leave Europe (we're an island!)

Can't deport or be cruel to alleged terrorists > Leave Europe (we don't need the European Convention on Human Rights)

Can't stop corporations playing the tax system > Leave Europe (the borders become hard, the taxes unavoidable)

Our press don't really need more reasons to whip up the anti-EU mob, corps shouldn't help them do so.

something123• 11 years ago

Am I alone in thinking corporation tax is idiotic?

I think corporations are incredibly immoral institutions (due to skewed incentive structures), however - ultimately it's a collection of investors, owners and employees.

Why not be honest and tax the corporations on the outflow of capital? ie. dividens, wages and sales tax

Corporate tax is ultimately a populist hidden tax on the whole economy b/c no one "feels" it. If you raise it everyone will whoop and cheer (b/c fuck big co!) and not appreciate it's impact on salaries or retirement funds.

Maybe I'm missing something?

nevi-me• 11 years ago

From my tax knowledge, in South Africa it's difficult to get away with paying ridiculously low amounts of tax consistently. The corporate tax rate is 28% taxed on worldwide earnings. Though you prepare returns as a single entity (i.e. each subsidiary files its returns and the holding company would also file its own return), there are transfer pricing provisions, as well as provisions for connected persons (related parties/companies) that make it difficult to just keep 'profits' in Ireland without paying taxes on them.

If I could argue that if FB was headquartered in SA it would be paying at least 20% effective taxes, then surely the issue would be that the specific countries (US and EU) have lenient tax laws. Companies will keep gaming the system if lawmakers don't have the appetite to ignore company lobbying and do what's best for the income of their countries.

Whether the issue is that they don't want to lose the business of these tech companies is something else. South Africa started imposing VAT on digital services sold by foreign companies last year. As a result my Google Play Music subs started costing me 14% more, funny enough as I technically shouldn't even be having All Access as I'm in an 'unsupported country'. Apple still charges me the same for music, which means someone had to take the loss to keep the value the same. Nonetheless, some people are unhappy, but our country gets to benefit with the extra 14% collected.

tim333• 11 years ago

They should have a new tax where a companies profits are estimated globally and then a percentage of that is allocated to the countries where it trades based on the amount of trade done there. So if facebook's global profits are $2.9bn and it does 50% of trade in the US then it should be taxed as having made 1.45bn there and then pay US tax (35%) there so $507m there, even if they claim all the profits were made in some tax haven.

It seems a simple solution but there is probably not much lobbying money in the politicians bringing it about.

david_mitchell• 11 years ago

The basic problem here is that business is now global whereas taxation is still at the nation state level. Countries have to compete for business and smaller states with limited resources can bring in money by becomming tax havens. I don't really know of any solution to this.

I think it's worth pointing out that even from the perspective of most businesses this situation sucks. Smaller companies or startups lack the resources to benefit from tax avoidance schemes so are at a disadvantage to their larger competitors.

And if you do start a company that is growing large you don't really have much choice but to start doing it too. You won't be able to compete if you are paying 20% and the competition is paying 2%. You have to do it because everyone else is doing it.

cpursley• 11 years ago

Corporations don't pay tax even when they do. The tax is a cost passed on to the end consumer. I'd rather see a combination of a progressive consumption tax (necessities < luxuries) combined with trade tariffs that's appropriate for the country being traded with. This would circumvent the shell company trick.

dragonwriter2• 11 years ago

Yes, corporations pay tax, even when it looks like they just pass it on in prices, since they lose after tax income (except in the unusual case where price does not affect volume sold so long as competitors face the same price increase.)

throwaway20487• 11 years ago

The idea that all taxes are just costs passed onto the consumer is patently abusrd, if they could easily raise prices to that level and have people pay, they already would have. It effects profit margins much more than it does the prices they set.

tcfunk• 11 years ago

The average UK salary is £26,500 on which employees pay a total of £5,392.80 in income tax and national insurance contributions.

Whoa, what? That's some hefty tax for the 26k bracket!

cardinalfang• 11 years ago

Half of that is national insurance which is concentrated on £8k - £35k band, counteracting the progressive income tax bands.

kuschku11• 11 years ago

Nah, that’s not much. Germany is closer to 40% tax in that bracket. Denmark and co, too.

lukasm2• 11 years ago

Why not reduce corporate income tax and add 1% revenue tax? If you can't afford 1% you are gonna go bust anyway.

hawkice• 11 years ago

So, the generic answer for why we favor income or value-added taxes over revenue taxes is that (1) we want to encourage investment, so marginal business expenses are essentially tax-free, and (2) revenue taxes limit the ability for competitive middlemen (who can lower transaction costs) and give massive advantage to vertically integrated semi-monopolies.

lukasm2• 11 years ago

Sure, but maybe the benefits outweigh costs. Revenue tax reduces accounting costs, simplifies models, it's better for small startups etc.

ac1294• 11 years ago

The £4,327 tax is only talking about the UK subsidiary, right? Because from their income statement [1], they paid $1.97B in income tax on $4.91B income before tax for a rate of 40.12%.

I might be misinterpreting something, but I think we should be careful to accuse them of abusing loopholes if they're still paying such a high rate overall.

[1] http://finance.yahoo.com/q/is?s=FB&annual

joesmo• 11 years ago

What's the point of having a company like FB or Starbucks in your country if they're an incredible net loss to the economy? Why not stop attracting these kinds of businesses or even actively seek to kick them out? I mean, assuming that fixing the tax laws for corporations is impossible, which I think at this point is a fair assumption.

With numbers like this, it'd be easy to morally justify looting, and other otherwise criminal activities against both these types of corporations and the government that allows them existence. It'd seem to start tearing down at the social fabric in many countries, not just the UK, where the poor are actually taxed more than these corporations. With just a little more poverty and misery, I wouldn't be surprised if at some point we started seeing violence and social upheaval as people realize they have no other recourse.

And who could blame people if they reacted this way?

kriro• 11 years ago

I'd kind of like to spend a day with the people who think up these schemes and pick their brains (lawyers, accountants, CFOs, whoever works on this). Not because I want to "optimize taxes" but because I'm genuinely curious about how they tick, if they see it as a game of sorts etc.

You have a complicated legal framework and try to optimize in it. At the end of the day I'd still wonder...gee is it "ok" that we pay only that much but like I said I'd like to see how this general problem is approached.

laichzeit02• 11 years ago

Trump's solution? Cut the U.S. corporate tax rate to 15% from the current top rate of 35%. This would make corporate inversion unnecessary. I think he also had the idea of capping tax at 10% for companies wanting to bring their money back.

At some point you have to ask yourself "why are companies doing this?" and fix the root cause.

te_chris• 11 years ago

Creating a race to the bottom is the opposite of fixing the root cause. The US already has a way to deal with this as it's the system used internally between states: levy taxes where sales happen.

laichzeit02• 11 years ago

So the idea is to punish corporates into submission instead of making it so cheap to do business in the USA they don't wanna go elsewhere?

toephu2• 11 years ago

Do any presidents actually follow through with what they say during pre-election? Plus a president doesn't even have the power to lower corporate tax by himself anyway.

WeAllDieByBan• 11 years ago

Why do people think that taxation follows a simple accounting mechanism of collect-and-spend? Taxation is collateral for a soverign to get loans and bonds. Taxes do not pay for anything.

forrestthewoods3• 11 years ago

Excellent. Paying the smallest amount of taxes one is legally obligated to pay is one of the most noble of endeavors.

If every country got their "fair share" of revenue the total taxes on $1.00 would be approximately $1.50.

evanpw• 11 years ago

So...the employees likely pay a larger amount in income taxes than Facebook would have paid in corporate taxes, and the remainder goes to the actual UK employees rather than shareholders in the US. Isn't this the best possible outcome for the UK? Is this article just pure mood affiliation (greedy corporations!), or is there something I'm missing?

oliwarner• 11 years ago

It's a good headline but in this case, HMRC made somewhere between two and five times as much money through Facebook's accounting choice here than had they kept the money as corporate profit.

That's because the Facebook paid out those profits to employees as bonuses. That wiped out the corporate profit but the employees have paid income taxes which are much, much higher than corporation tax.

This is significantly different from the corporate tax dodging companies like Amazon EU do by bribing EU states into letting them have a super-low corporate rate if they put all the EU books through that country. Not saying that Facebook aren't also doing that, that's just not what this is about.

to3m• 11 years ago

I wonder what the response would have been had it turned out Facebook were going to pay their employees less, because they'd be making more profit that way ;)

denysonique• 11 years ago

Less taxes == more money in our pockets. Facebook higher taxed == FB Ads more expensive == Higher product prices for the consumers

Taxes are always as result paid by the consumers/employees, never by "businesses".

Money saved by Facebook corresponds to money saved in our pockets.

Nelkins• 11 years ago

Does anybody have any recommendations for decent books or articles on corporate tax evasion?

jayess• 11 years ago

Outstanding. Tax competition is a good thing.

callesgg• 11 years ago

Thats why you get some good finance people, to use the system against itself.

Aslong as it is legal great, mabye the UK should fix some tax laws if that is the case, if it is not legal fine them..

lifeisstillgood• 11 years ago

There are several main pain points :

- companies need to be treated as "unitary" - that is passing profits around internally should not affect the tax paid

- profit is the least definable of all measures. Revenue is something companies don't like to lie about.

- this change will have to come to small and even consumers to be fair (my wife and I are a unitary item ? Can we share tax allowances?)

- even if we decide on treating companies as one black box, choose a better metric to tax on (revenue, dividends) we still do not have a formula for distributing across national borders. Should the US get all Facebooks profits? No. Should Facebook pay UK based on number of UK users it has? Doubtful. So ....

We are not going to see this end well - unitary treatment seems obvious but a international agreement on how to divide tax will need another two world wars to sort out.

United857• 11 years ago

As others have pointed out, this is far from unique to FB. I'd be surprised if any large multinational corporation didn't do such creative "optimizations" globally.

E.g. British companies doing the same thing in the US:

http://www.washingtonpost.com/wp-dyn/content/article/2006/09...

Don't hate the player, hate the game.

baxterross• 11 years ago

So, Facebook provides a free service to millions of people in the UK, and people are pissed that Facebook isn't PAYING more for the privilege of giving them free stuff?

Sounds like a bunch of ungrateful children to me.

kevindeasis• 11 years ago

Not from me: As an accountant, most people are not going to be happy with my comment, as it goes against the Group Think here, but this number likely makes sense for the following reasons: 1) Facebook is an American company so discussing up its U.K. Income tax is click bate, pure and simple. American companies pay the majority of income taxes to the US, of which Facebook had at $1.9B tax bill in 2014. 2) there are very complex cross-border income tax rules, where at a high level, other countries will make a corporation pay income tax on business income earned in its country. However, it says right in the article, Facebook UK had a taxable loss last year, and in most jurisdictions you can use prior year losses to reduce current year taxes payable, which is likely what is happening here. 3) they would be paying a lot of other taxes to the UK government. The article mentions employees meaning there will be a host of payroll taxes. There would also be sale tax. The article implies shirking the system, but believe me, governments want and get their money. In summary, this article is click bait trying to get people angry at things they do not understand unless you work as an accountant or tax lawyer..

Source: https://www.reddit.com/r/worldnews/comments/3ofo13/facebook_...

Facebook paid £4,327 corporation tax in the UK in 2014

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