Facebook UK Tax – More Chicanery From “Misleading Spin”

Facebook, like many corporations use tax chicanery in different jurisdictions to reduce overall tax liabilities in what most citizens around the world feel is nothing more than tax cheating. Political pressure is rising as austerity measures are imposed on populations whilst huge wealth, owed in taxes is moved off-shore. Facebook disclosed in August that it could owe $billions due to an IRS investigation in the U.S. into the way it moved assets to an Irish subsidiary to avoid higher taxes.

The IRS tax penalty could total $3 billion to $5 billion, plus interest, according to a Facebook filing with the Securities and Exchange Commission. If so, Facebook says the penalty could have a “material adverse impact” on its financial position.

In the meantime, according to The Guardian, “Facebook’s UK business generated an £11.3m tax credit last year, despite the world’s largest social network making a global profit of $6.19bn (£4.97bn), according to the latest company accounts. The credit at Facebook UK Ltd can be offset against future tax bills and is likely to raise further questions about whether the $370bn US company is paying its fair share towards Britain’s public finances.” Clearly, it is not.

Facebook UK’s accounts for 2015 were published in the last few days, online at Companies House. Tax Justice Network Director of Research Alex Cobham commented:

“Facebook UK’s accounts show specific issues, but point also to the real problem: that major multinational companies appear to be able to pick and choose, unlike the rest of us, where and how much tax they will pay. British Prime Minister Theresa May has said her government will fight back against tax avoidance – if she is serious, she will immediately implement the tax transparency measure that was passed in the new Finance Bill so that the public can see which companies are meeting their UK responsibilities.”

Cobham continues: “There are two main points of interest in these accounts: first, it appears that Facebook UK has paid no tax, despite the misleading spin being put on the company’s position; and second, Facebook continues to claim that its UK operations are significantly less profitable than elsewhere.

“We can already see headlines stating that Facebook paid more than £4 million in tax last year, and comparing that favourably to what it paid the preceding year. But in fact, Facebook has used the accounting treatment of share options for staff – that is, of large payments to what are likely to be typically the most highly remunerated individuals – to create a tax benefit of around £15 million. The effect is that the £4 million tax charge of last year, and a further £11 million of future tax payments, will be cancelled out completely. So in practice Facebook UK appears to have paid nothing in corporate tax to the UK public purse – less, even, than the £4,327 in 2014 that sparked public outrage.

“The second point to note from Facebook’s accounts is that even with this effective incentive to declare UK profit and the associated tax liability for this year, the UK operation still appears to be relatively unprofitable. Globally, Facebook declares a profit equal to roughly 20% of its revenues. In the UK, the accounts show that over £200 million of revenues have instead given rise to a loss of £50 million. Is this a true reflection of the UK market’s worth to the global business? We may never know, because Facebook UK’s parent company is registered in Delaware – one of the most financially secretive jurisdictions, with no requirement to publish accounts, and a significant part of the reason why the United States is increasingly recognised as a leading tax haven.

“The public demand for multinationals to declare taxable profit where they do their business will not go away. Policymakers must step up and make this a requirement. After an amendment to the 2016 Finance Bill, HM Treasury now has the power to require multinationals to publish country-by-country information on where they do their business, where they declare their profits and where they pay tax. The government should enact this basic transparency measure as a matter of priority. Companies like Facebook can then decide whether they are happy to defend their tax strategies to the public – or if instead they will change their ways.”

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