Global companies offshoring profits and not paying enough tax (in the eyes of many countries) was a hot topic at the last G20 summit in Brisbane.
This isn't limited to Facebook, as the article explains. The issue and background here is that when large companies operate globally, each country has its own local subsidiary, owned by the global entity. Money is made in each country by selling goods or services. How are the profits sent upstream to the parent company? By charging costs for goods; or license fees for services. As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't. This is also how companies shift profits to no- or low- tax jurisdictions. See: Apple and their large amounts of cash held outside of the USA.
With increased globalisation, this is an issue for many countries. In Australia, for example (where I live), the roll out and success of Uber means that the taxi company tax base will erode. If Uber shifts profits overseas, the Australian Government gets less tax but still has to provide the same level (or greater) services. Uber's a better service, we want it to succeed, but tax is needed for necessary services.
While companies continue to do this, the answer is information sharing between countries' tax offices and laws to ensure a certain amount of profits must stay on-shore, while not dis-incentivising multi-nationals from doing business in each country. As this already has political attention, I'd expect laws in most major countries to deal with this over the next 5 years.
Apple is a particularly difficult case, because they control every link in the chain of supply from manufacturing to retail and pay less than 1% effective corporate tax from their profits. From every step of the supply chain.
It is very difficult, if not impossible, to compete with Apple without having a similar end-to-end control of manufacturing to retail. If a company has to purchase their products from a manufacturer or sell their product to a 3rd party for retail, they are losing to Apple because that flow of money can't be hidden from the tax man.
Europe is currently facing major financial issues and a significant portion of this is that money gets funneled away to the US (or offshore accounts of US corps) without the fair share of taxes of their profits left here.
Stories like this make me question if corporate tax even makes sense. However well designed, a tax code with today's complexities is going to have holes. If a savings of even one per mill may mean millions, corporations are going to spend insane amounts of money to hire the best experts to use every last loophole.
Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything:
- Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out.
- Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven).
- A consumption tax (VAT) could be added, although this doesn't seem necessary to me.
Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?
>As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't.
I've only seen one really effective way around that suggested, but it's not without it's drawbacks. If a country taxes each sale of a service or product, then it's no longer possible to funnel money out of the country. It effectively eliminates companies that operate in a country for years with a fake lose.
The drawback is that it will potentially cost jobs and close business that could be profitable in the long term.
> while not dis-incentivising multi-nationals from doing business in each country
I'd argue that the incentive to do business in several countries is the profit they're making in those countries. No company is going to walk away from a company because they're being charge x% of tax on the money they earn. They might say they will, but they may as well be saying this...
"Because I don't want to pay you $1, I will reject the $5 this other person is going to give me."
Well, in hypothetical laissez-faire capitalism taxes would not be needed to provide infrastructure - Uber would just have to pay its fees for driving on private roads (etc.). This would drive prices up, but fairly divide the costs between the roads' users. Although I must admit I have no idea how things could look with purely digital companies like Facebook. I can think of local ISP-s charging the company for allowing access to the website, but that would probably become just an additional earning opportunity for them, without any noticeable positive influence on the local population.
Simple 1% revenue tax on companies with revenue of more than $15 million would fix the issue. No other taxes, just revenue one, no tax credits, no refunds. No hiding costs, no going offshore, no creative accounting. One tax on all revenues that will hit your account. This would also help to cut out all the middle man driving prices up and make the logistic chain quite small.
Some countries want to experiment with this starting with foreign corporations, we will see.
I don't agree with that in all cases, and I particularly don't agree related to Uber.
When I lived in NYC, I often called "311" to complain about taxi-driver misconduct. This was the only outlet, and you really only did it because you wanted to feel better. There were never any direct consequences that you knew of.
If you consider the decreased cost of operating the 311 service, as well as lower taxi-related crime, less drunk driving, etc., I'd guess that a government would spend less when Uber had replaced all traditional taxi services.
(You can also think of Uber as redistribution of wealth from wealthier to less wealthy, since riders will usually be wealthier than drivers. In that case, Uber makes tax revenue go up, since poorer people usually pay more in taxes.)
Edit: Clarified some language, since no one seemed to have understood anything I said the first time.
You could call it "increased globalisation" but abusing transfer pricing was invented by the Vestey Brothers in the late 19th Century when they began importing beef from Argentina. They also invented the abuse of the offshore trust.
The legislative arms race that evolved was the UK tax office trying to tax the Vesteys, who went on to be one of the UK's wealthiest dynasties.
Sometimes I feel like a fool, but we've always said from day 1 try to do things as honestly as possible which I'm quite proud of, but there really doesn't seem to be much practical upside apart from not being outed and shamed.
First world problem I guess, at least we're turning a profit.
It is starting to make me a bit bitter though. For example, we've spent a LOT of time making sure we file and pay the full VAT due on all our sales which is insanely complicated. Then we suffer further with the new VAT Moss rules which are aimed at targeting these big businesses who are avoiding it as best possible, but the end consequences being an even bigger burden for small businesses like us.
Makes me wonder if we decided to exit if we could get a higher multiplier. Firstly we represent a reduced risk to the buyer, and secondly the buyer might see it as opportunity to absorb us into their accounting practises which would make us significantly more profitable overnight. I guess that is a potential benefit, but the idea of it ending like that doesn't sit comfortably with me.
Corporation tax in the UK is payable on 'profits subject to corporation tax'. In laymen's terms this is roughly equivalent to to accounting profit.
Employee salaries, bonuses, etc are generally deductible; if you pay me 50K, that's 50K out of your bottom line.
The employees in question likely pay a variety of taxes including but not limited to the standard income tax. In an extreme scenario (recent graduate + highest tax band) that could be 61% rate.
(For comparison, the 2015 rate for Corporation Tax is 20%; so as far as the Exchequer is concerned, a salary payment is preferable, at least in immediate terms).
In summary, I think there's a discussion to be had here about abuse of taxation frameworks but the headline here is bait; the bonuses are irrelevant, any oddities regarding transfer payments etc. are what should be focused on.
edit: My position on taxation in general is that we should be focusing on Capital Gains Tax (taxes the gain on appreciation of assets such as shares) and Income Tax (taxes income from sources such as employment, share dividends).
Taxing corporations seems like it can only ever be arbitrary at some level, because they don't.... 'exist', for lack of a better term. They can be ephemeral, relocate, etc.
Exactly, it makes little economic sense to tax corporations. It makes much more sense to tax the people who own corporations when they take the money out of them.
Though there might be some practical reasons to tax corporations a bit. It might be easier to prevent tax evasion when you take the money at the source and it might lessen the amount of personal purchases being passed as business expenses to avoid taxes.
The UK press seems to have a field day when it comes to multi-national corporations not paying corporation tax.
We will no doubt shortly have a number of MPs telling us how unacceptable this is and that Facebook need to start paying up.
This all irks me a little.
362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.
Then we can look at those 'stock' bonuses that much of the article seems to point towards. There will likely be capital gains tax paid by employees on the sales of those assets down the line.
The UK has seen a strong economic recovery and remains a global financial centre and the business friendly tax policies of the UK likely contribute heavily towards this.
If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
> 362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.
First of all, that's Facebook employees paying tax. Not Facebook. That's their money that they are taxed on and they pay it.
Secondly, no one is asking for Facebook to pay tax on nothing. They should pay it on profits. It was tax payers money that built the Great British Telecommunications Infrastructure that Facebook 100% depends on for it's operations here.
> If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
No one is going to give up all the money they can earn in a country that has one of the lowest corporation tax rates in the world. Facebook is not going to convince it's key employees to leave Britain, uproot their families and go live in the desert or china. Any threat by a company to leave one of the strongest economies in the world is a pathetic bluff.
Afaik Facebook is still overwhelmingly based in Dublin, employing three times as many as in the UK. They likely hire in the UK the bare minimum they really need. So yeah, they've already "relocated" really.
This is the same for pretty much any European corporation, btw. Anyone who could leave for cheaper shores, did so in the '00s. What is left are the essential crews strictly necessary to the job of tapping one of the richest consumer markets on the planet.
The "employment threat" is basically toothless nowadays anyway, because "new economy" numbers are ridiculous in the great scheme of things -- 350 jobs won't change much of anything.
Do you think they'd pay more or less tax in Dublin compared to £5k? Irelands 12.5% seems very reasonable considering its so close to its effective rate. France, Britain and Germany all allow massive write offs and loop holes that mean their effective rate is multiples lower than their stated corporate tax rate and this story will be forgotten by the Brits, Germans and French who'll turn around and repeat their condemnation of Ireland as a cheap tax haven when negotiating EU funding.
Starbucks get away with the same thing. Amazon intentionally doesn't turn a profit and so evades this whole situation altogether. Anyway Facebooks EMEA is already in Dublin.
If they hold them for 5 years there is no Cap Gains tax to be paid on the shares.
Arguing that the tax employees pay should be taken into account when calculating a companies tax provision lacks merit. That's employees tax not the companies - this is especially true for companies such as Starbucks where if they were not monopolising high street space by abusing the tax system and small local coffee shop would happily take their space in a fungible manner meaning the employee tax payments would still take place and there would be no net loss for Starbucks not existing.
>362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC.
Why should Facebook get to enjoy an advantage over 36 companies employing 10 people each at a similar average salary?
>If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
You'd prefer every large company to be based in the UK and not pay corporation tax?
Of course not.
Personally, I think we're long overdue another huge waste like DeLorean coming along.
The thing is that is the employees that pay the the income tax _not_ Facebook. Facebook (and others) are still not paying the taxes on the the income they earn from operating in the UK no matter how many people they employ at high salaries.
The choice you present is a false one, the multiplier productivity effect that Facebook employees gain from operating in London as opposed to Dublin far outweighs what Facebook would end up paying in corporation tax under a more reasonable system.
I don't think it's advocacy of "aggressive taxation policies" to argue that the corporation tax bill for a profitable multinational earning millions in UK revenue ought to be higher than the income tax bill for an individual person on the UK average wage. YMMV.
How many of Facebook's 362 UK staff would be unemployed for any significant period if they relocated to Dublin? How many would instead be adding value to a company that paid 20% corporation tax, whilst paying similarly high taxes on a similarly high salary?
That's why it has to be done across many countries so global companies cannot play one country against another. Your assumption that there are only two options doesn't apply.
No-one expects companies to pay the full whack of tax. But Facebook is taking the piss. They need to be a bit careful, because they risk causing much tighter tax regulation in EU.
Citizens don't see this behaviour and think "well done, got one over on the government". Most citizens are infuriated by this scumbag behaviour.
And before anyone says "they're just obeying the law" -- we don't know that. They're clearly not evading tax, just aggressively avoiding it, but some tax avoidance schemes haven't been tested in courts yet.
> "No-one expects companies to pay the full whack of tax."
Why? I don't understand why this is considered acceptable. I'm expected to pay the full whack of tax (income, VAT, etc), but somehow it's taken as given that corporations will pay 'less than they're supposed to'. How can we fix anything if this is the prevailing attitude?
'some tax avoidance schemes haven't been tested in courts yet'
Probably because the law isn't either fit for purpose, or clear enough for someone to litigate.
As far as I'm concerned, if they (are obeying the law) and getting away with it, then articles like these only expose that the government are the incompetent ones.
> They need to be a bit careful, because they risk causing much tighter tax regulation in EU.
Don't think they've got much to worry about as long as Juncker's in charge of the commission at least. There will be huffing and puffing, but no blowing the house down.
My one-man-show consultancy pays far more than that in UK corporation tax. Of course that pisses me off, regardless of how you paint this whole tax avoidance scheme.
Someone said that "paying tax is for poor", and this goes a long way to support it.
So they paid next to no corporation tax. Meanwhile their employees will have paid a stack of income tax & the new rules on VAT should mean that all Facebook Ad sales to UK customers are subject to UK VAT.
I don’t think the UK is being shortchanged all that much. When Google/FB et al were able to shift Ad sales to low-VAT regime holding companies, that was definitely taking the piss. This? Meh.
I'm asking someone who is more knowledgeable than me on this topic. What would happen if you replace all (most) tax with VAT?
That would mean everywhere there is a real transaction, that generates greater value, that is where the tax is. It would also make it impossible for big companies to do tax evasion - since you limit the effects to the 'leaves' of the tree that is the economic system, you can catch the money before it escapes put the company 'tree' structure, out of the reach of the state.
From my tax knowledge, in South Africa it's difficult to get away with paying ridiculously low amounts of tax consistently. The corporate tax rate is 28% taxed on worldwide earnings. Though you prepare returns as a single entity (i.e. each subsidiary files its returns and the holding company would also file its own return), there are transfer pricing provisions, as well as provisions for connected persons (related parties/companies) that make it difficult to just keep 'profits' in Ireland without paying taxes on them.
If I could argue that if FB was headquartered in SA it would be paying at least 20% effective taxes, then surely the issue would be that the specific countries (US and EU) have lenient tax laws. Companies will keep gaming the system if lawmakers don't have the appetite to ignore company lobbying and do what's best for the income of their countries.
Whether the issue is that they don't want to lose the business of these tech companies is something else.
South Africa started imposing VAT on digital services sold by foreign companies last year. As a result my Google Play Music subs started costing me 14% more, funny enough as I technically shouldn't even be having All Access as I'm in an 'unsupported country'. Apple still charges me the same for music, which means someone had to take the loss to keep the value the same. Nonetheless, some people are unhappy, but our country gets to benefit with the extra 14% collected.
It's a good headline but in this case, HMRC made somewhere between two and five times as much money through Facebook's accounting choice here than had they kept the money as corporate profit.
That's because the Facebook paid out those profits to employees as bonuses. That wiped out the corporate profit but the employees have paid income taxes which are much, much higher than corporation tax.
This is significantly different from the corporate tax dodging companies like Amazon EU do by bribing EU states into letting them have a super-low corporate rate if they put all the EU books through that country. Not saying that Facebook aren't also doing that, that's just not what this is about.
Am I alone in thinking corporation tax is idiotic?
I think corporations are incredibly immoral institutions (due to skewed incentive structures), however - ultimately it's a collection of investors, owners and employees.
Why not be honest and tax the corporations on the outflow of capital? ie. dividens, wages and sales tax
Corporate tax is ultimately a populist hidden tax on the whole economy b/c no one "feels" it. If you raise it everyone will whoop and cheer (b/c fuck big co!) and not appreciate it's impact on salaries or retirement funds.
Corporations don't pay tax even when they do. The tax is a cost passed on to the end consumer. I'd rather see a combination of a progressive consumption tax (necessities < luxuries) combined with trade tariffs that's appropriate for the country being traded with. This would circumvent the shell company trick.
The thing that large corporations should remember is the the UK is one of the few countries in the world that can pass retrospective legislation and then enforce it (this has happened on tax issues as recently as the 2000s). At some stage a UK government is going to claw back this money and I think it won't be pretty for anyone. (NB I fundamentally don't agree with the concept of retrospective legislation I'm merely saying the UK can do it.)
I don't know if is the case of Facebook, but in general this is the story of most of tech companies, all are located in Ireland where they pay so much less taxes, and in rest of EU countries all this big companies pay this quantities or in the worse case the government return money.
EU is totally broken, one market with one tax per country; Obviously, all companies go to the country with less taxes. And the different is not 1% or 2% is like 10% or more.
> Its most recent Companies House filing shows the company as making a pre-tax loss of £28.5m last year, but the firm also paid its 362 UK staff a total of £35.4m in share bonuses.
So £35m was distributed as income towards the employees. This means the employees are paid extra, have more money to contribute and spend locally, and have paid the correct income taxes on the bonuses. How is this a bad thing?
What's the point of having a company like FB or Starbucks in your country if they're an incredible net loss to the economy? Why not stop attracting these kinds of businesses or even actively seek to kick them out? I mean, assuming that fixing the tax laws for corporations is impossible, which I think at this point is a fair assumption.
With numbers like this, it'd be easy to morally justify looting, and other otherwise criminal activities against both these types of corporations and the government that allows them existence. It'd seem to start tearing down at the social fabric in many countries, not just the UK, where the poor are actually taxed more than these corporations. With just a little more poverty and misery, I wouldn't be surprised if at some point we started seeing violence and social upheaval as people realize they have no other recourse.
And who could blame people if they reacted this way?
FB is playing the game that corporations play all over the world - global tax arbitrage. They shift operations, losses and profits to different countries based on tax policy.
The similar thing happens here in the US at the State level. It isn't uncommon for large companies to pack up and move their operations to lower tax States, or to actually bargain with individual States over who will give them the best deal. Here in Massachusetts, Fidelity packed up and left for North Carolina and Texas - they found it was cheaper to move employees than pay the taxes.
This will likely continue as long as different countries (and States) have different tax schemes - and that isn't going away anytime soon.
Soon we'll probably have a renewed call for a lower tax rate here in the US for companies to repatriate those revenues.
Shameful. Just shameful. I don't care how it gets sugar coated, if you claim to be working for the good of humanity (in facebooks case by connecting people together) and then you loophole yourself out of paying taxes, you are morally bankrupt.
I worry about the drip-drip-drip of information that the British public can (and probably will) use to end up at the conclusion that leaving Europe in the future will be the silver bullet to all of the issues.
Immigration from Europe > Leave Europe (we're an island!)
Can't deport or be cruel to alleged terrorists > Leave Europe (we don't need the European Convention on Human Rights)
Can't stop corporations playing the tax system > Leave Europe (the borders become hard, the taxes unavoidable)
Our press don't really need more reasons to whip up the anti-EU mob, corps shouldn't help them do so.
[+] [-] jkahn|10 years ago|reply
This isn't limited to Facebook, as the article explains. The issue and background here is that when large companies operate globally, each country has its own local subsidiary, owned by the global entity. Money is made in each country by selling goods or services. How are the profits sent upstream to the parent company? By charging costs for goods; or license fees for services. As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't. This is also how companies shift profits to no- or low- tax jurisdictions. See: Apple and their large amounts of cash held outside of the USA.
With increased globalisation, this is an issue for many countries. In Australia, for example (where I live), the roll out and success of Uber means that the taxi company tax base will erode. If Uber shifts profits overseas, the Australian Government gets less tax but still has to provide the same level (or greater) services. Uber's a better service, we want it to succeed, but tax is needed for necessary services.
While companies continue to do this, the answer is information sharing between countries' tax offices and laws to ensure a certain amount of profits must stay on-shore, while not dis-incentivising multi-nationals from doing business in each country. As this already has political attention, I'd expect laws in most major countries to deal with this over the next 5 years.
But Facebook are taking the piss here.
[+] [-] exDM69|10 years ago|reply
It is very difficult, if not impossible, to compete with Apple without having a similar end-to-end control of manufacturing to retail. If a company has to purchase their products from a manufacturer or sell their product to a 3rd party for retail, they are losing to Apple because that flow of money can't be hidden from the tax man.
Europe is currently facing major financial issues and a significant portion of this is that money gets funneled away to the US (or offshore accounts of US corps) without the fair share of taxes of their profits left here.
[+] [-] phlo|10 years ago|reply
Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything:
- Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out.
- Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven).
- A consumption tax (VAT) could be added, although this doesn't seem necessary to me.
Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?
[+] [-] sspiff|10 years ago|reply
Also in the eyes of many citizens of those countries, not just the government trying to make the budget fit.
[+] [-] mrweasel|10 years ago|reply
I've only seen one really effective way around that suggested, but it's not without it's drawbacks. If a country taxes each sale of a service or product, then it's no longer possible to funnel money out of the country. It effectively eliminates companies that operate in a country for years with a fake lose.
The drawback is that it will potentially cost jobs and close business that could be profitable in the long term.
[+] [-] tomelders|10 years ago|reply
> while not dis-incentivising multi-nationals from doing business in each country
I'd argue that the incentive to do business in several countries is the profit they're making in those countries. No company is going to walk away from a company because they're being charge x% of tax on the money they earn. They might say they will, but they may as well be saying this...
"Because I don't want to pay you $1, I will reject the $5 this other person is going to give me."
[+] [-] krotton|10 years ago|reply
[+] [-] funkyy|10 years ago|reply
Some countries want to experiment with this starting with foreign corporations, we will see.
[+] [-] raverbashing|10 years ago|reply
Also, how much VAT and other taxes are charged in an iPhone sold in Europe
Same for Facebook, their ads generate VAT. Their employees there pay income tax.
[+] [-] smt88|10 years ago|reply
I don't agree with that in all cases, and I particularly don't agree related to Uber.
When I lived in NYC, I often called "311" to complain about taxi-driver misconduct. This was the only outlet, and you really only did it because you wanted to feel better. There were never any direct consequences that you knew of.
If you consider the decreased cost of operating the 311 service, as well as lower taxi-related crime, less drunk driving, etc., I'd guess that a government would spend less when Uber had replaced all traditional taxi services.
(You can also think of Uber as redistribution of wealth from wealthier to less wealthy, since riders will usually be wealthier than drivers. In that case, Uber makes tax revenue go up, since poorer people usually pay more in taxes.)
Edit: Clarified some language, since no one seemed to have understood anything I said the first time.
[+] [-] SixSigma|10 years ago|reply
The legislative arms race that evolved was the UK tax office trying to tax the Vesteys, who went on to be one of the UK's wealthiest dynasties.
More info here: http://m.francisclark.co.uk/news-views/blog/the-vestey-broth...
Plus ça change, plus c'est la même chose
[+] [-] sneak|10 years ago|reply
“There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” —Heinlein
[+] [-] TomGullen|10 years ago|reply
Sometimes I feel like a fool, but we've always said from day 1 try to do things as honestly as possible which I'm quite proud of, but there really doesn't seem to be much practical upside apart from not being outed and shamed.
First world problem I guess, at least we're turning a profit.
It is starting to make me a bit bitter though. For example, we've spent a LOT of time making sure we file and pay the full VAT due on all our sales which is insanely complicated. Then we suffer further with the new VAT Moss rules which are aimed at targeting these big businesses who are avoiding it as best possible, but the end consequences being an even bigger burden for small businesses like us.
Makes me wonder if we decided to exit if we could get a higher multiplier. Firstly we represent a reduced risk to the buyer, and secondly the buyer might see it as opportunity to absorb us into their accounting practises which would make us significantly more profitable overnight. I guess that is a potential benefit, but the idea of it ending like that doesn't sit comfortably with me.
[+] [-] stegosaurus|10 years ago|reply
Corporation tax in the UK is payable on 'profits subject to corporation tax'. In laymen's terms this is roughly equivalent to to accounting profit.
Employee salaries, bonuses, etc are generally deductible; if you pay me 50K, that's 50K out of your bottom line.
The employees in question likely pay a variety of taxes including but not limited to the standard income tax. In an extreme scenario (recent graduate + highest tax band) that could be 61% rate.
(For comparison, the 2015 rate for Corporation Tax is 20%; so as far as the Exchequer is concerned, a salary payment is preferable, at least in immediate terms).
In summary, I think there's a discussion to be had here about abuse of taxation frameworks but the headline here is bait; the bonuses are irrelevant, any oddities regarding transfer payments etc. are what should be focused on.
edit: My position on taxation in general is that we should be focusing on Capital Gains Tax (taxes the gain on appreciation of assets such as shares) and Income Tax (taxes income from sources such as employment, share dividends).
Taxing corporations seems like it can only ever be arbitrary at some level, because they don't.... 'exist', for lack of a better term. They can be ephemeral, relocate, etc.
[+] [-] BenoitEssiambre|10 years ago|reply
Though there might be some practical reasons to tax corporations a bit. It might be easier to prevent tax evasion when you take the money at the source and it might lessen the amount of personal purchases being passed as business expenses to avoid taxes.
[+] [-] arethuza|10 years ago|reply
[+] [-] TomGullen|10 years ago|reply
[+] [-] mrkmcknz|10 years ago|reply
We will no doubt shortly have a number of MPs telling us how unacceptable this is and that Facebook need to start paying up.
This all irks me a little.
362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.
Then we can look at those 'stock' bonuses that much of the article seems to point towards. There will likely be capital gains tax paid by employees on the sales of those assets down the line.
The UK has seen a strong economic recovery and remains a global financial centre and the business friendly tax policies of the UK likely contribute heavily towards this.
If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
[+] [-] tomelders|10 years ago|reply
> 362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.
First of all, that's Facebook employees paying tax. Not Facebook. That's their money that they are taxed on and they pay it.
Secondly, no one is asking for Facebook to pay tax on nothing. They should pay it on profits. It was tax payers money that built the Great British Telecommunications Infrastructure that Facebook 100% depends on for it's operations here.
> If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
No one is going to give up all the money they can earn in a country that has one of the lowest corporation tax rates in the world. Facebook is not going to convince it's key employees to leave Britain, uproot their families and go live in the desert or china. Any threat by a company to leave one of the strongest economies in the world is a pathetic bluff.
[+] [-] toyg|10 years ago|reply
Afaik Facebook is still overwhelmingly based in Dublin, employing three times as many as in the UK. They likely hire in the UK the bare minimum they really need. So yeah, they've already "relocated" really.
This is the same for pretty much any European corporation, btw. Anyone who could leave for cheaper shores, did so in the '00s. What is left are the essential crews strictly necessary to the job of tapping one of the richest consumer markets on the planet.
The "employment threat" is basically toothless nowadays anyway, because "new economy" numbers are ridiculous in the great scheme of things -- 350 jobs won't change much of anything.
[+] [-] s_dev|10 years ago|reply
Starbucks get away with the same thing. Amazon intentionally doesn't turn a profit and so evades this whole situation altogether. Anyway Facebooks EMEA is already in Dublin.
[+] [-] Marazan|10 years ago|reply
Arguing that the tax employees pay should be taken into account when calculating a companies tax provision lacks merit. That's employees tax not the companies - this is especially true for companies such as Starbucks where if they were not monopolising high street space by abusing the tax system and small local coffee shop would happily take their space in a fungible manner meaning the employee tax payments would still take place and there would be no net loss for Starbucks not existing.
[+] [-] mootothemax|10 years ago|reply
Why should Facebook get to enjoy an advantage over 36 companies employing 10 people each at a similar average salary?
>If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
You'd prefer every large company to be based in the UK and not pay corporation tax?
Of course not.
Personally, I think we're long overdue another huge waste like DeLorean coming along.
[+] [-] domfletcher|10 years ago|reply
The choice you present is a false one, the multiplier productivity effect that Facebook employees gain from operating in London as opposed to Dublin far outweighs what Facebook would end up paying in corporation tax under a more reasonable system.
[+] [-] switch007|10 years ago|reply
Let's not pretend all 362 Facebook staff are paying tax via PAYE.
[+] [-] notahacker|10 years ago|reply
How many of Facebook's 362 UK staff would be unemployed for any significant period if they relocated to Dublin? How many would instead be adding value to a company that paid 20% corporation tax, whilst paying similarly high taxes on a similarly high salary?
[+] [-] bkor|10 years ago|reply
[+] [-] CraigJPerry|10 years ago|reply
EDIT for brevity.
[+] [-] crdoconnor|10 years ago|reply
Is it 1992 again?
[+] [-] DanBC|10 years ago|reply
Citizens don't see this behaviour and think "well done, got one over on the government". Most citizens are infuriated by this scumbag behaviour.
And before anyone says "they're just obeying the law" -- we don't know that. They're clearly not evading tax, just aggressively avoiding it, but some tax avoidance schemes haven't been tested in courts yet.
[+] [-] amirmc|10 years ago|reply
Why? I don't understand why this is considered acceptable. I'm expected to pay the full whack of tax (income, VAT, etc), but somehow it's taken as given that corporations will pay 'less than they're supposed to'. How can we fix anything if this is the prevailing attitude?
[+] [-] paulojreis|10 years ago|reply
I do.
[+] [-] squiggy22|10 years ago|reply
Probably because the law isn't either fit for purpose, or clear enough for someone to litigate.
As far as I'm concerned, if they (are obeying the law) and getting away with it, then articles like these only expose that the government are the incompetent ones.
[+] [-] chrisseaton|10 years ago|reply
This is saying that they're guilty until proven in compliance. I'm sure you do lots of things every day that haven't been tested in court yet.
[+] [-] tragic|10 years ago|reply
Don't think they've got much to worry about as long as Juncker's in charge of the commission at least. There will be huffing and puffing, but no blowing the house down.
[+] [-] bnastic|10 years ago|reply
Someone said that "paying tax is for poor", and this goes a long way to support it.
[+] [-] pja|10 years ago|reply
I don’t think the UK is being shortchanged all that much. When Google/FB et al were able to shift Ad sales to low-VAT regime holding companies, that was definitely taking the piss. This? Meh.
[+] [-] kuyfiuyg|10 years ago|reply
That would mean everywhere there is a real transaction, that generates greater value, that is where the tax is. It would also make it impossible for big companies to do tax evasion - since you limit the effects to the 'leaves' of the tree that is the economic system, you can catch the money before it escapes put the company 'tree' structure, out of the reach of the state.
[+] [-] nevi-me|10 years ago|reply
If I could argue that if FB was headquartered in SA it would be paying at least 20% effective taxes, then surely the issue would be that the specific countries (US and EU) have lenient tax laws. Companies will keep gaming the system if lawmakers don't have the appetite to ignore company lobbying and do what's best for the income of their countries.
Whether the issue is that they don't want to lose the business of these tech companies is something else. South Africa started imposing VAT on digital services sold by foreign companies last year. As a result my Google Play Music subs started costing me 14% more, funny enough as I technically shouldn't even be having All Access as I'm in an 'unsupported country'. Apple still charges me the same for music, which means someone had to take the loss to keep the value the same. Nonetheless, some people are unhappy, but our country gets to benefit with the extra 14% collected.
[+] [-] oliwarner|10 years ago|reply
That's because the Facebook paid out those profits to employees as bonuses. That wiped out the corporate profit but the employees have paid income taxes which are much, much higher than corporation tax.
This is significantly different from the corporate tax dodging companies like Amazon EU do by bribing EU states into letting them have a super-low corporate rate if they put all the EU books through that country. Not saying that Facebook aren't also doing that, that's just not what this is about.
[+] [-] something123|10 years ago|reply
I think corporations are incredibly immoral institutions (due to skewed incentive structures), however - ultimately it's a collection of investors, owners and employees.
Why not be honest and tax the corporations on the outflow of capital? ie. dividens, wages and sales tax
Corporate tax is ultimately a populist hidden tax on the whole economy b/c no one "feels" it. If you raise it everyone will whoop and cheer (b/c fuck big co!) and not appreciate it's impact on salaries or retirement funds.
Maybe I'm missing something?
[+] [-] cpursley|10 years ago|reply
[+] [-] JupiterMoon|10 years ago|reply
[+] [-] elicox|10 years ago|reply
EU is totally broken, one market with one tax per country; Obviously, all companies go to the country with less taxes. And the different is not 1% or 2% is like 10% or more.
[+] [-] maccard|10 years ago|reply
So £35m was distributed as income towards the employees. This means the employees are paid extra, have more money to contribute and spend locally, and have paid the correct income taxes on the bonuses. How is this a bad thing?
[+] [-] joesmo|10 years ago|reply
With numbers like this, it'd be easy to morally justify looting, and other otherwise criminal activities against both these types of corporations and the government that allows them existence. It'd seem to start tearing down at the social fabric in many countries, not just the UK, where the poor are actually taxed more than these corporations. With just a little more poverty and misery, I wouldn't be surprised if at some point we started seeing violence and social upheaval as people realize they have no other recourse.
And who could blame people if they reacted this way?
[+] [-] inthewoods|10 years ago|reply
The similar thing happens here in the US at the State level. It isn't uncommon for large companies to pack up and move their operations to lower tax States, or to actually bargain with individual States over who will give them the best deal. Here in Massachusetts, Fidelity packed up and left for North Carolina and Texas - they found it was cheaper to move employees than pay the taxes.
This will likely continue as long as different countries (and States) have different tax schemes - and that isn't going away anytime soon.
Soon we'll probably have a renewed call for a lower tax rate here in the US for companies to repatriate those revenues.
[+] [-] snorrah|10 years ago|reply
[+] [-] forrestthewoods|10 years ago|reply
If every country got their "fair share" of revenue the total taxes on $1.00 would be approximately $1.50.
[+] [-] buro9|10 years ago|reply
Immigration from Europe > Leave Europe (we're an island!)
Can't deport or be cruel to alleged terrorists > Leave Europe (we don't need the European Convention on Human Rights)
Can't stop corporations playing the tax system > Leave Europe (the borders become hard, the taxes unavoidable)
Our press don't really need more reasons to whip up the anti-EU mob, corps shouldn't help them do so.