Oct 11 2012

Facebook’s UK corporation tax bill last year was less than it pays a single average worker

Posted by: Nick Shaxson in: Thoughts

This is an extraordinary story, from the UK’s Daily Mail:

The average salary package paid to each member of Facebook staff in the UK last year was more than the entire amount the internet giant paid the Treasury in corporation tax.

Facebook paid just £238,000 to Her Majesty’s Revenue and Customs during 2011 despite annual revenues for its UK arm being estimated at £175million.

In comparison, the average staff remuneration package was £270,000 during the year.

This involved a transfer pricing game, using Ireland as the offshore bolthole. It illustrates among other things that when people talk about Ireland’s headline corporation tax rate of 12.5%, this is easy to misunderstanding. What Ireland is selling, much more than that, is its willingness to help multinational corporations exclude whole chunks of their income from the tax net altogether.  TJN’s Richard Murphy is quoted:

“Tax accountant Richard Murphy said the accounts were ‘meaningless’ because so much of the revenue was channelled through Ireland.

He added: ‘These accounts show that Facebook is recording expenses through the UK to claim tax relief on them, but recording costs through Ireland to benefit from its low rate of tax. It’s the same old story of we pay the price and they get the benefit.’

This company is taking the benefits from Britain – its roads, rule of law, regulated markets, educated workforce, universities, and so on – and then using the offshore system to get out of paying for any of these privileges. Facebook (presumably) hasn’t actually broken the law. But this sort of thing is, to use an expression, simply criminal.

Read more about transfer pricing here. Read a fascinating tale about how Ireland created a swamp of financial and tax abuse and crime, here.

And if you want to watch a fantastic film/movie about this stuff, which manages to pull off the feat of being highly entertaining yet highly accurate at the same time, go here.

Copied from the TJN blog.

11 comments so far

La Chupacabra 10th October, 2012 1.06 pm

“This company is taking the benefits from Britain – its roads….”

Its ROADS! Seriously? When did Facebook start using roads?

Sinking a little deeper every day.

Nick Shaxson 10th October, 2012 12.30 pm

oh yes, of course, i forgot, all the facebook execs are so rich that they fly everywhere in helicopters

La Chupacabra 10th October, 2012 12.54 pm

Facebooks execs in the do pay tax, and with income of £270k per head, 14 times the UK median wage, that will be enough tax to over their road usage a few times over.

Try something else. This is an epic #fail.

Nick Shaxson 10th October, 2012 7.07 am

Edouard, have you considered reading a one-pager on how the UK (or any) tax system works? Just to get up to speed on the basic principles. Corporation tax and personal income tax are entirely different things.

Strategist 10th October, 2012 7.09 pm

When did Facebook start using roads?
What do you think the cables delivering Facebook to every house run along & beneath?
Who would look after Facebook if I started cutting those cables in two?
Fool.

La Chupacabra 10th October, 2012 12.52 pm

Nick,

You may want to brush up on your elementaries of taxation economics. As the increasingly likely next President once said: “corporations are people” when it comes to tax. Any corporate tax always comes out of a real human being’s wallet.

That person can be a shareholder or creditor (lower return), customer (higher price) or employee (lower compensation). In the case of the UK, which is an open, small-ish economy (about the size of California), most of the corporate tax is paid by workers.

The UK government could raise more corporate taxes from Facebook (at 25% or whatever the rate is), but that would come out of workers’ compensation, which is taxed at 50%). That would be pretty daft.

So basic. Should someone writing a blog about taxes not know that kind of stuff?

Nick Shaxson 10th October, 2012 7.35 am

Ah yes, that old canard, Edouard. When Romney asserted that “corporations are people, my friend” he was laughed out of town. It’s true in a narrow sense, but the point here – the central point – is WHICH people? So you admit that corporation taxes do fall upon shareholders. Well, that’s progress at least. ( Remember the contortions you tied yourself in with the GE hoax http://treasureislands.org/does-the-ge-hoax-give-clue-about-tax-incidence/ ). So now who are those shareholders? Well, let’s try Cirque du Soleil, for example. http://taxjustice.blogspot.ch/2012/10/tax-avoidance-first-facebook-then.html Or let’s try Facebook: Mark Zuckerberg. That’s a double win for the UK: they get tax revenue, and it comes out of a foreigner’s pocket. Similarly for the Starbucks story. Oh, and then there are the bankers. If some of the burden of tax falls on the investment banker “workers” of Goldman Sachs, then even you I think would have to agree that that is a good thing, no?

La Chupacabra 10th October, 2012 12.56 pm

Strategist,

You are picking a particularly poor example. The UK’s entire fiber and cable telecom infrastructure has been installed and financed by private capital, and not by public funds. In fact, it has been largely financed by foreign capital.

This is another epic #fail.

Nick Shaxson 10th October, 2012 7.29 am

Yes, and of course all the people who put facebook together never went to university, never travelled on roads, never had to rely on the publicly guaranteed rule of law, and the internet companies never had to rely on publicly-funded research. So where do they all come from? Somaliland, I guess, or perhaps Transnistria. Even then, they do have taxes, after a fashion. Rather than just asserting things like “this is an epic fail” why not let your facts simply stand (or not) on their own merits?

La Chupacabra 10th October, 2012 10.02 pm

Romney has risen up 8-10 points in the polls since he made this comment, so watch out for who will have the last laugh.

I did not write that the incidence of corporate taxes fell on shareholders. In fact I suggested exactly the opposite. You can call this a ‘canard’, but it is the prevailing opinion among economists. That does not mean it is right, and you are free to object to this conclusion. But you have yet to put forward a single piece of academic or scientific analysis to support your position. (Memo: ITEP is not a research institution, but an advocacy group. It is in the same category as Grover Norquist Americans for Tax Reform).

Goldman Sachs’ 25,000 employees are not representative of the 200 million workers across the economy. If you are genuinely concerned about taxing Goldman’s employees, there are much better ways to do this than corporate taxes. But don’t let this get in the way of a banker-bashing opportunity.

Nick Shaxson 10th October, 2012 4.06 pm

You say that “I did not write that the incidence of corporate taxes fell on shareholders.”

Looking back, now, to your exact words:

“Any corporate tax always comes out of a real human being’s wallet. That person can be a shareholder . . ”

No it isn’t the prevailing view among economists. There is no consensus, in fact. The US CBO says so, as do many others. And unlike Americans for tax reform, CTJ is never accused of making things up. Their ability to analyse US tax data fast and accurately is unrivalled – even the right wing sites like to use their data.

Leave a comment

*