Facebook is the latest tech company to come under fire in the UK over the amount of corporate tax it pays. It was revealed on Monday that the social network’s UK business paid only £4,327 (around $6,590 or AU$9,030) in corporation tax in 2014.
The Palo Alto, California-based company, which made $2.94 billion (AU$4 billion or £1.9 billion) in profits globally last year, managed to cut its tax liability by giving its UK staff a total of £35.4 million in share bonuses, making itself operate at a loss of £28.5 million for 2014. Corporation tax is typically only levied on profit, at a rate of 20 percent in the UK.
As a result, Facebook UK paid less tax than the average Brit. The average resident of the UK earns a yearly salary of £26,500, meaning they pay roughly £5,300 in income tax, according to The Mirror — almost £1,000 more than Facebook did. Facebook’s 362 UK employees, however, earned on average over £200,000 each and were therefore liable for the top rate of 45 percent, much higher than the corporate rate. The company insisted its employees paid tax on all their income, including the bonus shares.
Facebook was reached for a comment but was not immediately available. “We are compliant with UK tax law, and in fact in all countries where we have operations and offices,” the company told the BBC.
Nevertheless, it is damaging for a company’s reputation to be seen to be finessing its tax arrangements. In 2012 the company attracted attention when it paid £0 in UK corporation tax. The company has also faced criticism for using the “Double Irish” strategy, which is when multinational corporations shift their income source from a higher-tax country to a lower-tax one. In Facebook’s case, it technically operates in Ireland, where the corporate tax rate is 12.5 percent, significantly lower than across the Irish Sea in Britain.
“These companies hire the best tax experts in the world to legitimately save where they can,” Kafrouni Lawyers’ Joe Kafrouni told CNET. “Facebook, as an example only, would have a legitimate reason as to why the transaction occurred the way it did — otherwise it would be evading tax, which would be illegal.
“Obviously, the argument is that countries are being ripped off by large multinationals because they are not paying their share of taxes in the country they are profiting from,” Kafrouni said.
The world’s most popular social network isn’t the only tech company avoiding taxes around the world. In 2013, Google’s UK vice president Matt Brittin was grilled by a parliamentary committee over the search giant’s Irish tax arrangements. Similarly, last year it was reported that Apple only paid $193 million in tax in Australia since 2002, despite generating $27 billion in revenue.
Several governments have begun to introduce laws to stop this from happening. Both the UK and Australia have designed legislation, sometimes referred to in the UK as the Google Tax, to dissuade corporations from tax avoidance practices.
“If the UK wants companies that make huge profits to also pay tax then it will have to alter the regulations that surround them,” said Crawford Spence, professor of accounting at Warwick Business School. “Internationally, there are just far too many loopholes and complex arrangements available to corporations.”