Facebook are the latest company caught avoiding UK Tax. They made £840m in profits last year. However, they paid just £2.9m in tax – all of it in Ireland. Although they only hire 287 staff in Ireland all, of the advertising outside the USA they book to Facebook Ireland.
They book the profit to Ireland. However, they then move that money out of Ireland to the Cayman Islands and its Californian parent. The technique is called Double Irish. They charge the Irish company royalties for using the Facebook brand in much the same as Starbucks do. They moved £750m that way.
Facebook then reported a loss of £15m loss in Ireland despite all the advertising revenues outside the US ending up there. This is even though 44% of Facebook’s revenues come into Ireland.
At least they gave Ireland £2.9m. They gave the UK just £238,000 in Corporation tax. Facebook say that they comply with all UK laws – and of course they do. They just know how to work the system.
It said that it picked Ireland as its European base because it was the “best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe”.
The low Corporation Tax of 12.5% and the ability to do be able to do a Double Irish, it seems, played no part in the decision to go there. Of course, Ireland didn’t get any great benefits from Facebook in terms of Company Tax. Although Facebook’s Irish staff pay income tax there.
UK Tax Avoidance
The Chancellor George Osborne has promised to do something about it. However, it will be difficult and he risks major companies pulling out of the UK. He is going to target high income earners in the UK who hide money overseas.
However, most of the schemes are completely legal. Neither the individuals or companies, like Facebook, are breaking any laws. It is legal tax avoidance rather than illegal tax evasion.
The big problem is with companies who charge other companies within the group royalty payments for using the brand name. They are perfectly entitled to do so. They are perfectly entitled to charge them anything they want for the use of it too.
Perhaps that is one area where the UK can legislate, i.e. to limit the amount that they can charge for using the brand name. Of course, those companies will then look for other costs that they can load up in the locations where they want to load up costs.