Facebook accused of taking UK for a ride over taxes
Figures suggest only 11% of sales in UK are declared,
with company benefiting from basing its HQ in Dublin
The Guardian, Wednesday 10 October 2012 17.09 EDT
Facebook has been accused of taking the British taxpayer
for a ride after experts suggested the company had depressed sales figures and
that the website's average UK employee earned more last year than the whole
social media network paid the exchequer.
The British arm paid its 90 UK-based staff an average of
£275,000 each in 2011 while contributing just £195,890 to the Treasury's
coffers, according to the firm's latest accounts filed at Companies House.
The website also reported UK revenues of £20.4m, a
fraction of the £175m that media analysts estimate the firm made in the UK in
2011.
Most of the sales are believed to have been booked in the
firm's international headquarters in Dublin, where they will attract lower
corporation taxes.
Richard Murphy, of Tax Research UK, said: "The UK is
being taken for a ride. Facebook is taking standard practice for these IT
companies to a new high, or low, depending on how you look at it. The UK is
giving the tax break and the Irish get benefit of all the tax on the
sales."
The chartered accountant added that the arrangement
between Facebook UK and its Dublin office suggests that only around 11% of
total sales made into the UK are declared in this country – a standard industry
mechanism whereby a UK-based company is paid a commission for the sales it
generates by a sister company located in a lower tax jurisdiction.
Furthermore, Facebook UK's latest figures show that the
company charged £15.4m to its 2011 accounts – which can be used to reduce
future tax bills – as a cost of awarding its UK staff share options. Murphy
said: "That appears to be £15.4m to reward £20.4m in sales. That makes no
sense. The options must, of course, be based on the value of sales recorded in
Ireland but the UK is bearing the cost of the tax relief on paying these
options."
When asked if Facebook had chosen to set up its international
headquarters in Dublin in order to lower its tax bill, a company spokeswoman
responded: "We have our international headquarters in Ireland that employs
hundreds and a series of smaller local offices providing support services all
over Europe. Dublin was selected as the best location to hire staff with the
right skills to run a multilingual hi-tech operation serving the whole of
Europe."
Media research group Enders estimates that Facebook UK
made £175m in revenues in 2011, which it predicts will increase to £236m this
year. The company analyses factors such as how many advertisements are being
placed on Facebook, the number of users and how long they spend on the site, as
well as surveying advertising agencies and large advertisers.
Overall, Facebook UK reported a £10.2m loss in the UK
last year, although the company appeared to admit that the published numbers
showed little resemblance to how the business is trading.
In a statement it added: "The information does not
necessarily present a full account of overall global financial performance so
it would be a mistake to draw any conclusions from these filings."
Facebook's UK accounts were audited by accounting firm
Ernst & Young, which declined to comment on its work.
The news of the tiny UK tax bill comes a week after the
group said that one billion people use the network every month, which equates
to one in seven people in the world. To mark the milestone, founder Mark
Zuckerberg wrote: "Helping a billion people connect is amazing, humbling
and by far the thing I am most proud of in my life".
However, the success of the soaring user numbers has not
been mirrored by the company's share price, which has halved since listing on
Wall Street's Nasdaq exchange in May at $38 a share.
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