Facebook may have tripled its tax bill but it isn't as good as it looks

The social network gets a tax credit for giving its employees shares, and the headline UK number still looks light when you consider the global ones 

Jim Moore
Chief Business Commentator
Monday 08 October 2018 12:46 BST
Campaigners say there aren't enough zeroes in Facebook's UK tax bill
Campaigners say there aren't enough zeroes in Facebook's UK tax bill

“Facebook triples its UK tax bill,” the headlines declared.

On the same day it emerged that PayPal and Twitter have also found a few extra coppers in their back pockets to kick over to the Treasury.

It looked like a victory for the campaigners calling for the tech giants to pay their fair share. But looks, and headlines, can be deceptive.

Let's concentrate on Facebook, as the biggest dog in the pound. The headline number for its UK corporation tax has indeed increased sharply, coming in at £16m. But the final payment will end up at less than half that because Facebook gives its employees a lot of shares and gets a tax credit for doing so.

Even if you choose to focus on the higher headline number, it still amounts to so much small change.

Facebook’s bill has increased because it overhauled its corporate structure in 2016 so that revenue from customers supported by UK staff is supposed to be recorded in the UK.

This means that a pre tax loss of £52.5m in 2015, when Facebook’s UK business was recorded as providing engineering, marketing and sales support, turned into a profit of £58.4m in 2016 and one of £62.5m in 2017 on revenues that went from £211m to £842m to £1.27bn.

However, when you consider that Facebook reported revenues of $40bn (£30.7bn) globally in 2017, and made a pre tax profit of $20bn on them, those figures for the UK look light, particularly the one for profits.

George Turner, director of Tax Watch, a think tank focussing on tax avoidance, says it is his belief “that Facebook is making far more from UK market than they are putting through the UK accounts”.

And you can understand why.

At this point, however, you have to make clear that no one has ever made any suggestion of illegality on the part of Facebook or, indeed, any of its peers.

The fact is that the 19th century rules they operate under allow multinational entities like them to effectively choose how much tax they want to pay.

The OECD has been working hard at trying modernise them. But getting agreement from its members has proven to be difficult because of the way countries like to play beggar thy neighbour with each other. They compete to offer the lowest possible headline rates of corporation tax, and frequently sugar coat them with sweetheart deals to lure big companies to their shores.

Ireland, through which Facebook routed its sales when the UK arm was apparently making a thumping loss, is a past master at the game.

But Britain, which likes to boast about how low its corporation rates are when compared to similarly sized rival economies, and which has been mooting cutting them still further post Brexit, is in no position to lecture anyone.

As for Chancellor Philip Hammond’s headline grabbing notion of a digital services tax, which would presumably be designed to address structures that book the cost of services in one country while declaring profits in cheaper ones?

Facebook and its friends are basically voluntarily paying a little bit more, largely as a result of the pressure that has been exerted upon them. Unless it successfully addresses a situation that makes tax, for them, a matter of choice rather than obligation it will represent nothing more than posturing.

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