Some Facebook users in the United Kingdom (UK) may be getting ready to put that rumored “dislike” Facebook button to use: the social media site paid just £4,327 ($6,643 US) in UK corporate tax in 2014.
No, that’s not missing a few zeros. It’s really £4,327 ($6,643 US). To be clear: I paid more in tax this year in the US than Facebook paid in the UK. That, despite the fact that Facebook reported total global profits of $2.9 billion in 2014 and I reported, er, let’s call it slightly less.
Here’s the catch: while revenues are up (with mobile ad sales in particular), Facebook -claims that it made very little profit in the U.K. It’s not that there aren’t Facebook users in the UK – there are. More than a third of the UK population pops over to Facebook every day (according to 2013 data) to like, share and emoticon up a storm. By the end of the year, Facebook had reported more than three times the user count of its social media rival, Twitter.
However, in the UK, as in many countries, corporate taxes are calculated on profits. Profits are very different than revenues. Even when revenues are up, profits can be down. And that’s what Facebook claims happened. The company actually claimed a pre-tax loss of £28.5 million ($43.7 million US). Despite the “loss” it paid its UK staff more than that, or £35.4m ($54.28 million US), in bonus money.
Other expenses also whittle away those profits on paper, resulting in a lower tax bill. It’s what you and I do – just multiplied by millions.
And, according to Facebook, it’s perfectly legal. A spokesperson for the company said, about the calculation:
We are compliant with UK tax law, and in fact in all countries where we have operations and offices. We continue to grow our business activities in the UK.
That doesn’t mean that everyone is happy about it. Corporate taxes have been a controversial topic in the UK for the last several years. Starbucks became the focus of public indignation in 2012 when it was revealed that over a period of more than 10 years, the company only paid a total of £8.6m ($11.5 million US) in corporate income taxes. Initially, the company cried poor, citing that it had only made a profit in one of those years but later admitted to shifting royalty and other intellectual property income to tax-favored Netherlands. Kris Engskov, Managing Director for Starbucks in Britain and Ireland, eventually announced that the coffee retailer would pay more in tax than it “has” to in order to appease angry consumers.
Similarly, Google was alleged to have generated $18 billion in revenue from the U.K. over a five year period beginning 2006 and paid just $16 million in corporate taxes over that same time frame, a .09% tax rate (less than a tenth of a percent). Like fellow tech company, Apple, Google used a “highly contrived” and controversial subsidiary in Ireland to lessen its tax burden. Like Facebook, Google claims that it’s in the right, saying at the time, “As we’ve always said, Google complies with all the tax rules in the UK and it is the politicians who make those rules.”
The furor over low tax rates prompted Archbishop of York John Sentamu, who ranks second only to the Archbishop of Canterbury within the Church of England, to suggest that those companies were committed a moral crime, reminding churchgoers that, “It is sinful, simply because Jesus was very clear; pay to Caesar what belongs to Caesar and to God what belongs to God.” He went on to say that individuals and businesses who were not paying their full tax liabilities of “not only robbing the poor of what they could be getting, they are actually robbing God.”
It’s a certainty that the news of Facebook’s tax bill will again start companies and individuals talking about what’s “fair” for companies to pay in tax. While it’s agreed (mostly) that companies shouldn’t have to pay more in tax than the law decrees, allegations continue to surface to suggest that certain global companies were offered sweetheart deals to do business in Europe. Last year, the European Commission announced that it would be formally investigating the tax structures and practices of three specific corporations in very targeted destinations: Apple (Ireland), Fiat Finance and Trade, and Starbucks (Netherlands). Shortly afterwards, an EU official admitted that the Commission was “looking into what kind of arrangement Luxembourg has with Amazon” which would allow Amazon to lower the rate of tax it pays. Joaquín Almunia, Vice President of the European Commission, also indicated that Google, Microsoft and McDonald’s were all subject to investigation.
With greater chatter comes greater scrutiny. UK Chancellor of the Exchequer George Osborne (Conservative Party) has made it clear that firms that the run of exploiting deals in an effort to pay lower tax rates may be coming to an end. Earlier this year, he made his position clear in the new budget, saying, “Let the message go out: this country’s tolerance for those who will not pay their fair share of taxes has come to an end.” The new budget included a so-called “Google Tax,” intended to make it more difficult for large companies to divert profits to keep tax rates low.
Chances are, that tax won’t get much of a like from Facebook in 2016.