Facebook and tax!

[HappydaysArehere]

Just read in the Times that Facebook is not going to pay tax in the UK. I use it as the family and a couple of friends post on it but I feel uncomfortable using it now. Has anyone else considered abandoning Facebook?

No why would I?

It pays the tax it owes. It is not avoiding tax (which is illegal). I'm glad the uk has such favourable corporation tax rates to attract big business. It's good for the economy.

It really annoys me when I see politicians bitching at companies and at HMRC for following the rules set by those politicians.

I think they should have 30 minutes at the end of the select committee meetings where those who have been shouted at by the ignoramuses get to talk back, uninterrupted with the same level of privilege.

It pays the tax it owes. You want it to pay more then campaign for the law to change. Why would anyone voluntarily pay more than they can pay by law? Do you?

Apparently it made a £22m operating loss in the uk last year. Requiring it to pay tax on a loss seems a bit.... mean.

The entire world is fiddling their taxes in one way or another (ok, slight exaggeration). I do not know a single self employed person who doesn't put through the odd receipt they shouldn't. Many apparently earn much less than they appear to. The politicians will claim anything they can on expenses.

Have you abandoned Google? Amazon? Local tradespeople? It would be very hard to avoid every company who isn't paying the taxes they perhaps should be paying.

People pay the lowest amount of tax they can legally get away with. Rightly or wrongly, that seems to be the way things are.

If I choose to not use Facebook, it won't be because of their UK tax payments (or lack of).

The fundamental problem isn't a large company like Facebook fiddling their taxes. It's the fact they're taking advantage of the mess that is currently European tax rules.

One of the founding principles of the EU is of course the common market. The idea being you establish yourself in any EU country and can trade with any other EU member freely and only paying taxes in your 'base' country. Fair enough right? After all we wouldn't expect Rolls Royce to pay French corporation tax then again in the UK right?

The problem though is that EU corporation tax rates aren't level. So you have France & Germany at about 30%+ The UK at 20% and Ireland at 11%. And not of course forgetting Luxembourg who will happily do you a secret backroom hush hush deal if you are a multinational.

So if you are a large multinational coming to the EU to do business where do you set up? In Germany so you can pay 30% tax? Or Ireland/Luxembourg where you will pay a LOT less? That's why eBay, Facebook & Google set up in Ireland. That's why Amazon & Starbuck have set up in Luxembourg.

Is that right? Well yes & no. Morally you could argue that it's blatant tax avoidance. But legally they're taking advantage of the very reason for the EU's existence. The free market.

But how many of us would knowingly offer to pay more tax than you need to? I know I wouldn't.

The bottom line is that tax avoidance is only immoral when someone else is doing it.

Thank you all for explaining, especially niceguy. I made the mistake of reacting to the Times instead of thinking this through.

There is a consensus now within the EU that there needs corporation tax rates need to be harmonised. But guess what....no-one can agree what to.

Obviously France & Germany want it to be more like 30% and Ireland/UK are saying "Screw that!".

Until agreement can be made, the politicians will be happy to let the big companies sound like the bad guys because it lets them off the hook from sorting out the complete shambles that our taxes currently are.

Corp tax rates will never be comparable, but that isn't really the issue.

It's the problem of determining how much profit is made in each country that needs to be addressed.
E.g. if you make widgets in the UK and sell them at a pittance to your Luxembourg-based parent co., making no profit at all, you'll pay no UK tax.
However, your parent company, having bought them from you at a pittance, sells them to the rest of the world at a fat profit. But because it's in Luxembourg it doesn't pay much tax.
This is known as transfer pricing and there are already rules in place to deal with this - transactions are supposed to take place at a roughly open-market rate. The problem with that is that, unlike a corp tax rate, an open market price for something is highly debatable.

In the case of Google for instance, Google Ireland charge Google UK a fee for providing certain services that make Google work. It just so happens that the fee is so big that it offsets nearly all of Google's UK revenue. So hardly any UK tax to pay. But as Google is almost unique - no-one else is doing what they do at the scale they do it - how do you arrive at an open-market value of that fee?

I expect the Facebook situation is similar...

Corp tax rates will never be comparable, but that isn't really the issue.

I actually think it is a big issue. If we're to operate within the single market then our tax rates will need to be closer than they are now. Not just corporation tax but income tax & VAT too. Longer term we do need convergence.

As for transfer pricing, it would be very odd indeed to expect a subsidiary to charge the parent company a big fat profit. What's in it for the company to do that unless it was against the law? That would be as stupid as to expect you to sell something to your parents at a huge profit just so you can pay tax on it. No, instead you'd sell it at cost or at a loss.

The principle of the EU is pay tax once at your base country and by law companies are only allowed to have one headquarters. So it's just incredible to expect companies to structure their affairs to pay more tax than they need to. When they're working to the rules they were given.

The real solution is to close down these loopholes or if the laws aren't working as designed then change them. But don't pillory companies for operating perfectly legally.

niceguy2 I think you may have misunderstood me - I was trying to illustrate how the business would be structured to make no profit in high tax countries and vice versa.

But anyway, I can't see convergence on tax happening ever. You can't have a unified fiscal policy without unifying everything else - what happens if your tax rates are limited by Brussels so you can't raise enough tax to pay your bills? You'd have to cut spending. And the implication of that is that someone outside of the UK is setting our budgets, deciding what we can spend on public services.

We'd never wear it, and neither would many other states. There's plenty enough resistance to the status quo, let alone further centralisation.

I agree that companies aren't going to feel any more moral obligation than individuals to pay tax that isn't legally required, and so we shouldn't expect them to. I think the anger comes from obvious examples of the law failing to produce an outcome that seems 'fair'.