If a company reports UK sales of £105m but only pays £4,327 in corporation tax, it will understandably raise a few eyebrows. This is the situation Facebook found itself in this week, as news of its earnings and tax payments made it into the press. By contrast, a single person in the UK on an average salary of £26,500 pays £3,180 in income tax and £2,213 in national insurance.
The company has joined a list of other major businesses, including Google, Amazon and Starbucks, accused of using avoidance schemes to make millions in UK sales, yet paying little tax. The Facebook revelations come just a week after news that the
Organisation for Economic Co-operation and Development (OECD) proposed rule changes to close international loopholes that allow such companies to minimise their tax bills. The social network responded by explaining that despite its UK sales, it had actually recorded a loss due to a bonus scheme created for its employees, hence the low tax.
Shambolic state of affairsWriting for news website
The Memo, Oliver Smith refers to the situation as "shambolic" and paints an unflattering picture of Facebook by revealing that its international profits were £1.9bn. Smith questions the validity of the firm's explanation that it made a loss in the UK when “British commuters spend a whopping £9.3bn shopping online on their smartphones alone”.
But it was apparently the firm’s salary bill that let it down; it included a £35m staff share scheme resulting in “an accounting loss of £28.5m”. There is no sympathy from MP Meg Hillier, Chair of Parliament’s public accounts committee, who told the website: “The Government isn’t powerless, but it is harder to deal with companies behaving this way under the current rules … Everyone should pay their fair share to the exchequer, especially as the nation is tightening its belt.”
Smith also includes a quote from the Chancellor, George Osborne, made in light of the recent OECD proposal: “No one should be in any doubt that we will take new steps at future fiscal events to introduce these new international rules to our own domestic tax laws. These taxes must be paid.”
The Memo comment
A miniscule amountFurther objection to Facebook’s tax payment comes from Lynsey Barber of
City AM, who refers to it as “a minuscule amount”. She compares the sum to the £4,408 cost of an annual rail ticket for a city worker commuting to London from Brighton, and adds that while Facebook paid only £4,327 in the most recent tax year, it is an increase on the previous year, when the amount was £3,169.
Barber claims that “the company’s finances go largely through its European headquarters in Ireland where it’s able to minimise taxes through the ‘Double Irish’ loophole”, which the country is taking steps to close, as it “has been used by many US companies setting up operations in Europe to minimise tax bills”.
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The Memo, the
City AM report cites George Osborne’s comments from the previous week: “We want the UK to have a competitive tax system. But we do want companies to pay their fair share.”
City AM opinion
Compliant with UK tax lawFor financial news website
Financial Director, Calum Fuller looks in detail at Facebook’s share bonus scheme. He says that with 362 staff involved, the scheme would have been worth £96,000 to each of them, resulting in an average salary of £210,000. A spokeswoman for Facebook added: “We are compliant with UK tax law, and in fact in all countries where we have operations and offices.”
Fuller goes on to reference the current initiative of the OECD to prevent the use of loopholes and reminds readers of how George Osborne has reduced corporation tax during his tenure to make it less tempting for companies to act inappropriately: “The rate was 28% when Osborne arrived at the Treasury and is 21% today, set to drop to 20% in April.”
But there is talk of how Osborne’s diverted-profits tax – dubbed the ‘Google tax’ – was less well received. It sees “a 25% levy applied to multinationals when they attempt to move profits out of the country”. Pascal Saint-Amans of the OECD said the idea was an embarrassment and could “cause other countries to take unilateral action of their own”.
Financial Director view
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