An interesting piece in the Conversation by Prem Sikka on Facebook’s corporation tax:
Facebook looks set to pay more UK tax but it might not be as much as you think.
Facebook, along with others (including Google and Apple) has been accused of tax dodging in the past, which it achieve, in part, by routing profits through Ireland.
Prem Sikka details how a decision by Facebook to declare profits in the UK may not amount to quite the tax haul for HMRC as some anticipate.
Sikka points out that:
“…since 2011 Facebook has been reporting accounting losses. Its audited UK accounts for 2014 do not provide any information about the composition of the administrative expenses, a key element in its reported losses and a possible reason for low tax.
Facebook has promised to change its business model and the way it records its sales revenues from advertising. Currently, Facebook books a number of its sales to UK customers through its Irish subsidiary, Facebook Ireland Limited. But it is set to pay millions more in taxes after a decision to allow profits from major advertisers initiated in the UK to be taxed in the UK. Facebook executives said in an internal post reported by the BBC that “UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook UK will then record the revenue from these sales”.”
This is interesting of course, because profits should already be taxed in the country within which that economic activity takes place. This begs the question of the legality of past and present arrangements (the new arrangement will not begin until 2017).
He concludes that:
The change in Facebook’s business model does not necessarily signal a new era in which Facebook will pay millions in tax that some might assume. One way to prevent Facebook and other big multinational companies from minimising their taxes would be to implement a system known as unitary taxation, which can eliminate the tax advantages of all intra-group transactions. But unitary taxation has received virtually no attention from the OECD’s recent Base Erosion Profit Shifting (BEPS) project, which was geared toward reforming the international system for taxing companies.