Facebook paid £4,327 corporation tax in the UK in 2014
bbc.co.uk
bbc.co.uk
This isn't limited to Facebook, as the article explains. The issue and background here is that when large companies operate globally, each country has its own local subsidiary, owned by the global entity. Money is made in each country by selling goods or services. How are the profits sent upstream to the parent company? By charging costs for goods; or license fees for services. As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't. This is also how companies shift profits to no- or low- tax jurisdictions. See: Apple and their large amounts of cash held outside of the USA.
With increased globalisation, this is an issue for many countries. In Australia, for example (where I live), the roll out and success of Uber means that the taxi company tax base will erode. If Uber shifts profits overseas, the Australian Government gets less tax but still has to provide the same level (or greater) services. Uber's a better service, we want it to succeed, but tax is needed for necessary services.
While companies continue to do this, the answer is information sharing between countries' tax offices and laws to ensure a certain amount of profits must stay on-shore, while not dis-incentivising multi-nationals from doing business in each country. As this already has political attention, I'd expect laws in most major countries to deal with this over the next 5 years.
But Facebook are taking the piss here.
I don't agree with that in all cases, and I particularly don't agree related to Uber.
When I lived in NYC, I often called "311" to complain about taxi-driver misconduct. This was the only outlet, and you really only did it because you wanted to feel better. There were never any direct consequences that you knew of.
If you consider the decreased cost of operating the 311 service, as well as lower taxi-related crime, less drunk driving, etc., I'd guess that a government would spend less when Uber had replaced all traditional taxi services.
(You can also think of Uber as redistribution of wealth from wealthier to less wealthy, since riders will usually be wealthier than drivers. In that case, Uber makes tax revenue go up, since poorer people usually pay more in taxes.)
Edit: Clarified some language, since no one seemed to have understood anything I said the first time.
If industry X was paying $100mm tax, and industry Y disrupts and replaces that, while paying only $20mm tax, the government needs to find $80 million to replace that tax shortfall.
Nothing to do with taxi related services...
To continue using Uber as an example, not only do they potentially decrease the costs of operating the government (see my reasoning above), they're also still paying local employees. Those employees will spend their Uber revenue and pay taxes, just as taxi drivers would.
Further, Uber makes it easier to move physical objects around in an economy. That should generally make the economy more efficient, which could also help to swing the balance in favor of a net positive effect.
All I was saying from the beginning is that it's not always true that an international company replacing local companies is creating a net decrease in government income.
This is drifting off-topic, but it's worth noting that Uber's short-term plan is to somewhat reduce the wages of people who drive taxis (or "share rides," as they call it), and greatly reduce the tax cities collect on that activity. Their long-term plan is robot cars with no paid drivers.
Old model: The taxi company spends 100% of its income in the state, meaning the state collects 100% of the taxes of the costs.
Uber model: Uber spends next to nothing in the state, so the state gets less.
Uber still uses the same governmental resources, uber drivers earn less than the taxi drivers (less income, less taxes), and have less money to spend (economy shrinks, less taxes).
Uber makes the economy less efficient, as more money ends up in the US than in local businesses.
No, it doesn't, at least not in the US. It uses fewer government resources, although I don't have the data to say how significant of a difference it is.
If you consider the taxpayer paying the bill because uber doesn’t insure properly, it costs even more.
As Uber benefits from public spending on these things, they should also contribute to their upkeep.
Not sure this one is a necessity. Uber is growing in China and India, and both of those places have legal systems and levels of corruption that shock those of us in the US learning about them for the first time.
I agree that Uber should contribute to the upkeep, but I was just doing an absolute comparison between Uber and taxi companies.
The only reason uber even ever made profit in some German cities was by refusing to buy insurance and thereby being cheaper than the competitors.
If you have a local taxi company, you make tax money from that company. If it's at least in your country, you make tax money from that company. If the support employees are in your city/country, you make tax money from those people.
So if the company is not from your country, and their support/offices/profits all go somewhere else, it's a loss for you (as a city or country) because before you got to make more money from the local taxi companies. Which you would hopefully use to pay for different services (not sure why you think 311 is the only conceivable cost here).
And honestly, you think rich people pay more taxes? Sorry, it's just not the case. 1 person making 100x more than an average person is going to pay less net taxes and will buy fewer things (even if it's more expensive stuff) than 100 people.
I understand that tax revenue goes down when Uber replaces local taxi companies. I'm not arguing with that.
However, Uber can possibly decrease the costs of running the government (police, 311, and possibly others). We can't know for sure without specific numbers, but it's possible that Uber saves a government more money than it removes by avoiding taxes.
And I wasn't saying that rich people pay more taxes. I was saying that rich people using Uber is a redistribution of income, since the rider is almost always wealthier than the driver.
This just isn't true at all.
The top 1% of earners in the US pay more tax than the bottom 90% combined. Sometimes rich people pay a smaller percentage of their income than less-rich people but in absolute terms poor people and middle class constitute a minority of the tax base.
Incidentally, the top 1% pay more tax, in absolute terms, because they earn more than everybody else. What's your point? That's how percentages and progressive taxation works.
Also in the eyes of many citizens of those countries, not just the government trying to make the budget fit.
It's hard to stop those countries from doing so, in the current framework of international trade and business. I don't know if a treaty limiting this kind of stuff is in the cards for the near future. And if it is, I'm not sure it would be signed or ratified by financial safe haven countries like Luxemburg, the Seychelles, Monaco or Belize.
100% capitalism isn't practical and is unfair (e.g, to the poor and sick). What is a fair way to divide costs for road usage: time of use, miles driven, emissions, cost of vehicle, ability to pay? It's not an easy answer, and many are practically unenforceable. Hence, tax.
And for the record: I'm generally capitalist by economic viewpoint.
(A world of purely voluntary contracts and no compulsory purchase would never have got past the development of the railway or telegraph, so the whole prospect is ludicrous)
https://mises.org/library/100-years-myths-about-standard-oil
Crony capitalism is not at all "capitalism". It is an beast created by the state, through military spending, stimulation, infrastructure or the means of social wellfare. The more "militaristic" or "social" a government becomes the more leaches appear.
Unless you are arguing the An-Cap thesis that these functions can be conducted by private entities. If you are, then congratulations: we're already living under your preferred system! It is just that for most territory, one company has seized monopolistic control of the territory, has called itself "the government", and no other companies have been formed to challenge it. Exceptions such as the West Bank where two companies are competing do exist.
From the `Impossibility of limiting the government` section of `What must be done`[1]
"Now, once the protection monopoly (government) is in place, a logic of its own is set in motion. Every monopolist takes advantage of his position. The price of protection will go up, and more importantly, the content of the law, that is the product quality, will be altered to the advantage of the monopolist and at the expense of others. Justice will be perverted, and the protector becomes increasingly an exploiter and an expropriator. More specifically, as the result of the territorial monopolization of protection, two tendencies are generated. First, a tendency towards the extensification of exploitation, and second, a tendency towards the intensification of exploitation."
It is very difficult, if not impossible, to compete with Apple without having a similar end-to-end control of manufacturing to retail. If a company has to purchase their products from a manufacturer or sell their product to a 3rd party for retail, they are losing to Apple because that flow of money can't be hidden from the tax man.
Europe is currently facing major financial issues and a significant portion of this is that money gets funneled away to the US (or offshore accounts of US corps) without the fair share of taxes of their profits left here.
Because other businesses also create products that collect VAT and still pay their taxes. Why should Apple be any different?
To promote those that are big enough to avoid taxation to make them even bigger?
Th
I'm not claiming I know what the solutions are. But I am damn sure theoretical solutions for theoretical situations tend to fail spectacularly in reality, no matter what topic they are about.
This all sounds sinister and it certainly is clever. But I don't see an easy way to fix it. I don't think a tax system where countries can tax profit that never enters its borders is viable. How would the UK feel if the Cayman Islands levied a tax on profit earned by UK companies?
In my simple mind, the failure is in defining profits. How do we define profit? The devil is probably in the details. *
If Wally's world buys widgets for $6B and sells them for $10B but then turns around and spends $5B on long term infrastructure, did they make a profit? Do they owe any taxes?
Something closer to home: Once we get into the details, it is very easy to get lost in there. When they spend $100 per hour to hire a consultant (programmer), does that count as capital expenditure? How?
I am not a lawyer and I am definitely not an accountant. I would imagine loopholes can be closed but it requires technical expertise that I lack.
* Perhaps only allow cross-border expenses to countries that honor a certain level of agreement?
PS: I am not so sure about taxing income in other countries. None of what I say applies to expatriating money from overseas. It only applies to monies a company makes in our country and tries to ship overseas. If Apple sells $100B worth of iPhones in the UK, should they pay corporate income tax on it in the US? Why not pay corporate tax on that in the UK?
Of course, because of the way companies can be structured, [Hollywood Accounting](https://en.wikipedia.org/wiki/Hollywood_accounting) is significant.
It's not like corporations are exploiting some totally neutral loophole they discovered -- those are there on purpose.
If one follows the news, there are constant reminders of this kind of lobbying going on (corporations asking for special treatment, especially when it comes to taxes) for a whole century. Besides a lot of this is done right out in the open. I mean coorporate lobbying was invented exactly for that -- to push governments for favorable laws, special treatment, laxer environmental and other protections, etc. On top of that, there are all kinds of under-the-table deals (with lots of them exposed frequently) with politicians and corporations.
That said, here are some pointers to the issue. First the general Wikipedia article:
A number of published studies showed lobbying expenditures can yield great financial returns. For example, a study of the 50 firms that spent the most on lobbying relative to their assets compared their financial performance against that of the S&P 500 in the stock market concluded that spending on lobbying was a "spectacular investment" yielding "blistering" returns comparable to a high-flying hedge fund, even despite the financial downturn of the past few years. A 2011 meta-analysis of previous research findings found a positive correlation between corporate political activity and firm performance. Finally, a 2009 study found that lobbying brought a substantial return on investment, as much as 22,000% in some cases. https://en.wikipedia.org/wiki/Lobbying#United_States
And the US specific one: https://en.wikipedia.org/wiki/Lobbying_in_the_United_States
The Atlantic: http://www.theatlantic.com/business/archive/2015/04/how-corp...
The Guardian: http://www.theguardian.com/politics/2014/mar/12/lobbying-10-...
National Review: http://www.nationalreview.com/article/421664/corporate-lobby...
Fortune: http://fortune.com/2015/09/04/lobbying-corporate-washington/
Economist: http://www.economist.com/node/21553020
Forbes: http://www.forbes.com/sites/chrisbarth/2011/12/14/29-compani...
Oxford University Press: http://www.amazon.com/The-Business-America-Lobbying-Corporat...
Lawrence Lessig: http://www.amazon.com/Republic-Lost-Money-Corrupts-Congress/...
The Influence Machine: The Influence Machine: The U.S. Chamber of Commerce and the Corporate Capture of American Life
Lobbying America: http://www.amazon.com/Lobbying-America-Politics-Business-Twe...
And those are "establishment" sources -- you'd get far better coverage in more outspoken and critical voices.
Regarding Apple in particular: http://www.theguardian.com/business/2015/jan/21/us-tech-tax-...
http://www.theguardian.com/technology/2014/sep/30/apple-repa...
Then, simplify the tax system. The more complex a system is, the easier it is to game. If necessary, tax revenue instead of profits: if a widget is sold here, the company which sold it should be taxed here.
So, the first thing that should probably be fixed is: no campaign donations, at all.
Campain donations just let the politicians catering to the richer population get more advertising and marketing power.
I'd go as far as forbid all political / campaign advertising. If they want to convince, let them organically convince their local voters, then their state, and up to the whole party etc. Not with costly marketing, videos and large, costly, speaking appearances.
Non-dom has taken about 100 years to be scrapped which was creatively spawned by the Vesteys
http://www.theguardian.com/uk-news/2015/jul/08/non-dom-tax-s...
If you can invest for example 500 millions USD in bribes to gain 5 billions per year in not paying taxes, that's a damn easy decision for some CEO. And those fictional 500 millions will get you quite far in these times, where lobbyists in capital cities in both EU and US are not even illegal (in my opinion should be shot in sight), but just part of daily life.
Or you know, to have the people running the business have a sense of ethics.
Setting up a nesting doll stack of shell corporations to dodge all that is, right now, legal, but is that the world I'd want to have a hand in building? Nope.
The governments of the world aren't doing a good enough job with the money I'm already giving them for me to start thinking about donating more.
The whole reason for taxes is that it helps the collective -- sometimes at the expense of the individual.
If it comes to that, why not finance helping quadriplegics from charity?
Because VAT, beside being a very effective tax (it's the biggest source of income of most countries), is the most unfair one.
Say a country have a 20% VAT
Low income household need to use the entirety of their income to survive (food, housing, etc). So effectively 20% of their income is collected as VAT.
Now a upper class household, let's say they save 25% of their income each month as retirement plans etc, and spend the rest.
They've been effectively taxed at 20% of 75% of they income, so their effective VAT rate was 15%.
While you often see very high income people advocate for flat rate tax instead of progressive tax, none of them have the nerve to propose a reversed progressive tax like VAT is, where poor people pay proportionally more than rich people.
at the end, poor people would become less poor, but only by screwing with system, and only very few of them. you can put some limits on who can buy what, but this will inevitably create a massive bureaucratic overhead, meaning another set of useless government jobs that create no added value, but draw cash steadily from treasury.
I've always felt your definition of "most unfair" to be a great fallacy. Yes poor people pay a higher percentage of their income. They also receive more in benefits than they give and the flat tax ensures the rich pay their share. The more complicated you make the system the more it will benefit the rich.
VAT is a net benefit for the poor. Making the whole system work that way, particularly in the face of globalization, is the best course of action. To declare it unfair is to cut off your nose to spite your face. In my opinion.
I don't see how a wealth tax is a good idea at all. If you could recommend a good article that argues why it's good and how it would work I'd love to read it.
You want your tax system to reward long term thinking, not punish it.
You're looking at the wrong end of the telescope. It's really not that difficult to look at a tax table and cross-reference your income, so a flat tax is a very minor improvement.
Where every tax system gets tripped up is in determining what qualifies as income. People who manage to avoid taxes aren't somehow lowering their rates; they're getting inflows of money excluded from the "income" accounting box.
It's not an easy problem to deal with, either - states have been trying for centuries. Most of the write-offs individuals and corporations take are perfectly reasonable for some situations and very much abused in others. As you try to prevent abuse you end up with a tax code that's so complicated there are more ambiguous "gray areas" for people to take advantage.
That increase can be used to help quadriplegics.
You can hold that view - but recognize that it is a specific view, not an essential definition of fairness.
Do you think that if there were a society of people where a majority were callous enough to deny those extremely disabled their medical care, that they wouldn't just vote out the bums who gave them that care, and the new generation of politicians wouldn't then rewrite the laws?
Edit: note that you can just go and read the accounts for Facebook UK here: https://beta.companieshouse.gov.uk/company/06331310/filing-h...
A very important piece of information is left out of the article: what Facebook UK is paying in "license fees" to other parts of Facebook.
The accounts show £131m in "administrative expenses", of which I can account for £86m in staff costs from the same document. £35m of that is a "share based payments charge", which represents the accounting treatment of share options. Of course, the shares handed out are shares of the US parent and not the UK subsidiary.
131-86=£46m which isn't broken down further.
So I don't think Toyota was running the same schemes we see in tax havens.
You then go and hire a good tax accountant who has experience with the Double Irish tax dodge (look it up on Wikipedia), and Bob's your uncle. (Though a double irish is harder to create for new firms since 2015 - you might have to acquire a ready-made shell corporation.)
Of course all this only makes sense if you have profits in the tens or hundreds of millions, so that paying for the shell companies, your Irish headquarters, your tax accountants and your lawyers is cheaper than actually paying tax.
So here's the deal. "Transfer pricing" is a thing, and it's what you're supposedly allowed to sell stuff at. https://en.wikipedia.org/wiki/Transfer_pricing
So if you sell something on the open market anywhere, you can't sell it to your foreign subsidiary or owner for too much more or less than the open market price. But things get dicey when you're talking IP: patents and trademarks don't trade on the open market but are absolutely vital for a subsidiary to be alive, right? Amazon isn't Amazon if it can't call itself "Amazon".
The other trick is to offer some kind of service that's difficult to precisely quantify like having an accounting or service center in one country that every foreign subsidiary is required to pay for. It might not be a reasonable price but the cost of auditing all the call center records to find out it's costing $3/minute (on average) for a particular US based company to outsource its support calls to somewhere instead of $0.10/minute is going to be very steep. Do this across a few different lines of corporate support and your profit hiding is accomplished.
Also, how much VAT and other taxes are charged in an iPhone sold in Europe
Same for Facebook, their ads generate VAT. Their employees there pay income tax.
I know we'll never pass something along the lines of FairTax, but I daydream about it all the time. And yes, I've heard all the arguments against it and I still think it's a much better solution than taxing income.
The marginal value of money decreases as the absolute value increases.
Getting a raise from $1k per month to $2k per month is more significant than from $2k to $3k
Meaning that if you earn more, you'll usually save more.
So now stuff is taxed at 50% (VAT or Sales tax), so everything will cost more, but it will be easier for the rich to afford it, because of no income tax, and harder for those with less income (their income tax was not high to begin with)
If you or your company is earning $1m in profit, and use half of that for spending and buying goods (that are taxed by sales tax) and the other half to buy revenue-producing assets - shares of other companies, real estate, bonds - then half of your income isn't taxed at all, your effective tax rate is twice as small as the tax rate on poor people.
This introduces an even stronger rich-get-richer mechanic to the society, as accumulating wealth generation (not just wealth) is tax-free.
Then the unions can cry foul about how the big bad companies wouldn't put up with their crap anymore
I'm sure in an ideal world everybody would be a public servant with no productivity goals but that has problems as well
They already did. That's the whole point of globalization.
"Investigations in the EU" means you’re fucked.
If they did? You seem to be dancing around the central point, which is, these numbers, while absurd, are generally completely above board and legal. Nobody is going to pay more tax than they're obligated to, and it's absurd to expect otherwise.
The problem about prosecuting these cases is that transfer pricing and IP "costs" are difficult to demonstrate as faked, and some of the loopholes may be legal, although Apple is now dismantling its double Irish Dutch sandwich, one of the tax avoidance strategies it invented.
Because I have a budget to spend on entertainment, and various companies compete for that budget.
We pay those taxes, Facebook/Apple doesn't 'generate' anything, that money would be spent on a different entertainment. We pay income taxes, if we didn't work for Facebook/Apple, we would have to find a different job, perhaps start our own company, etc.
I want to make this super clear. Those taxes, including income taxes, are our contributions, not Facebook's. The citizens are generating that money. If Facebook didn't exist, there would be a company filling that void with an alternative entertainment which VAT would still be charged on.
Now, on the flip-side, it's not entirely zero-sum and Facebook does increase the overall wealth. They are generating new markets, new growth, etc.
But is it by the percentage of money its extracting from the local economy? Of course not. And worse still, that money's sitting in an offshore account somewhere, not even flowing back into the US economy, because they're waiting for a tax break. So instead of doing what it's supposed to do, which is spur more growth, it's doing the worst thing it can, which is being excluded from the world economy.
Not really. "New Data Show Corporate Offshore Funds Not “Trapped” Abroad: Nearly Half of So-Called “Offshore” Funds Already in the United States": http://www.hsgac.senate.gov/subcommittees/investigations/med...
Before Apple did iPad, VAT from tablet sales was virtually zero.
I think you should tax what is easy and straightforward to tax; not aim for a "perfectly fair taxes".
Anyway, it shoud be good to you that you are paying taxes and not Apple. Next time Apple wants to ban phones with square screens, you tell them to back off because they don't pay taxes. You should get a voice here and you should to get your message straight. If you can't - blame your government and work towards digital democracy.
I just find it funny how the solution to lack of money is always wanting to squeeze more taxes from the companies and people instead of optimizing goverment spending (optimizing, not cutting)
Ah of course, living withing your means is now called 'austerity' and it's bad because?
The legislative arms race that evolved was the UK tax office trying to tax the Vesteys, who went on to be one of the UK's wealthiest dynasties.
More info here: http://m.francisclark.co.uk/news-views/blog/the-vestey-broth...
Plus ça change, plus c'est la même chose
> while not dis-incentivising multi-nationals from doing business in each country
I'd argue that the incentive to do business in several countries is the profit they're making in those countries. No company is going to walk away from a company because they're being charge x% of tax on the money they earn. They might say they will, but they may as well be saying this...
"Because I don't want to pay you $1, I will reject the $5 this other person is going to give me."
Since companies can't invest everywhere at the same time, they prioritize investments. A higher tax rate might mean investing in that country later, as there are other investments than have a higher immediate return.
I could see a situation where an investment was profitable, but so marginally profitable due to the tax rate that the investment was delayed effectively forever.
This assumes that when you scale up your organization, your costs scale up linearly. If it caused marginal wage to shoot through the roof, that could be a reason not to do it I guess.
These academic arguments about tax don't hold much sway with me. 18% is a perfectly reasonable rate of corporation tax. Paying that tax ensures the long term viability of the British economy from which Facebook will earn even more profits. Not paying it is just leaching the nutrients out of the environment. It's a scorched earth policy and HMRC should be merciless in their punishment of it. And I use the word punishment intentionally.
I've only seen one really effective way around that suggested, but it's not without it's drawbacks. If a country taxes each sale of a service or product, then it's no longer possible to funnel money out of the country. It effectively eliminates companies that operate in a country for years with a fake lose.
The drawback is that it will potentially cost jobs and close business that could be profitable in the long term.
“There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” —Heinlein
Some countries want to experiment with this starting with foreign corporations, we will see.
Its better for economy if brokers would focus on long term trades. Also usually high-volume low-profit businesses are the ones that are arbitrating prices and often are just middle man. No need for that. There is a way around. Obviously there would be FEW businesses that would be affected and need to change the way they work, but this comes always with any tax changes.
Anyways, I said all revenue that hits your account. Brokers usually don't keep their money in bank accounts, but in investment accounts, right? Until the money hit their actual bank account they would pay null on trades. So they would pay tax on all withdrawals and payouts to customers.
I don't know about you, but I really like what Amazon provides to me, and am quite glad corporations like it aren't strangled by our tax code.
1 very low tax to replace all the taxes from the producer to customer seems like much better option than being "not strangled" by current tax laws.
*3% assuming there is producer, distributor/owner and Amazon in the chain.
What country can levy this tax? Large companies like Apple have operations in lots of countries. Do they have to pay each one 1% of their raw revenue?
Poland is one of the few countries that already have this tax, but it is high now (I think around 20%) and optional. There is a lot of public discussion to drop it to between 0,5-1% on all revenues for all foreign owned companies making more than €15Mil/year. This got really popular after information that Google is reporting constant losses and not paying taxes despite ridiculous high revenues from local market.
Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything:
- Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out.
- Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven).
- A consumption tax (VAT) could be added, although this doesn't seem necessary to me.
Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?
There are lots of economic arguments for very simple tax systems that prioritise revenue collection over other things. But a lot of people would see them as "unfair" and therefore unjust.
Everybody who has something to lose will vote against a simpler system, doesn't matter whether its a private company or government.
cruft + tax payers writing law + tax collectors writing law
And a direct property tax is also not a good idea, as then you tax people for having property, not for using their property.
As far as I can tell, money will exit corporations in three ways: 1) salary, 2) shares and 3) payments for goods/services, mostly to other corporations. Income and capital gains taxes will take care of 1 and 2. The company won't owe taxes, but whichever natural person receives the money will. As for 3, my proposed system would be captive: because it doesn't charge corporate taxes, corporations won't have any motivation to try and move their earnings to other corporations (as they couldn't be taxed any lower).
You want companies to spend, to increase economic cash flow and generate jobs, which is why existing corporate taxes are on net income, not revenue or costs.
Corporate income tax today allows for companies to pay employees and buy goods/services without increased tax cost. It incentivizes cash flow into the economy and job generation by taxing whatever is left over (net income) after doing business.
A low corporation tax is valuable because it attracts foreign businesses, but that is necessarily zero-sum.
From what I understand, the actual proposed replacement for the corporate income tax is much simpler: eliminate it and replace it with a much more comprehensive capital gains tax. Then require companies to be much more forward with paying dividends.
Why are you fixating on share price? Now how are you going to tax LLC, LLP, etc.? Privately traded corps that don't have a market price?
As for privately traded corps and partnerships: My proposal was to tax capital gains. This could be done at each realization event, and at that point your transaction will usually have a market price. If you are exchanging stock in two privately traded corps, some way to determine fair market value will have to be found, but that seems to be an edge case to me.
Most limited liability organizations also don't have equity, which creates another loophole in your system. Now you're starting to get into why corporate income tax is complex.
Uh, what exactly is the difference between consuming and investing in assets? Most investment in assets is actually just a claim to consume some of the ROE.
Also, it's not clear to me how shifting cash flows into something makes an asset (or how a physical asset could directly benefit from increased cash flow [not sure how this is even possible; I can't pump FRN's into my car's gas tank]).
The problem is that corporations use the infrastructure and resources of countries they operate in. So you would still have a situation of a multinational company using the resources of country X without necessarily paying any tax for using the resources of country X.
This is not sustainable.
For human resources: income tax on salaries, unemployment insurance, medical insurance etc.
For some materials: excise tax.
For real estate: property tax.
Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.
This is a great idea to increase the wealth gap between U.S. and the rest of the world, for good or bad. Considering how many international conglomerates are U.S. based.
Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.
This is a great idea to increase the wealth gap between developed countries and the rest of the world, for good or bad. Considering how many international conglomerates are American, European or Japanese.
Developing countries wouldn't stand a chance this way.
Note that those are the pre-2008 hedge fund fees and the fees are presently less than that.
Sometimes I feel like a fool, but we've always said from day 1 try to do things as honestly as possible which I'm quite proud of, but there really doesn't seem to be much practical upside apart from not being outed and shamed.
First world problem I guess, at least we're turning a profit.
It is starting to make me a bit bitter though. For example, we've spent a LOT of time making sure we file and pay the full VAT due on all our sales which is insanely complicated. Then we suffer further with the new VAT Moss rules which are aimed at targeting these big businesses who are avoiding it as best possible, but the end consequences being an even bigger burden for small businesses like us.
Makes me wonder if we decided to exit if we could get a higher multiplier. Firstly we represent a reduced risk to the buyer, and secondly the buyer might see it as opportunity to absorb us into their accounting practises which would make us significantly more profitable overnight. I guess that is a potential benefit, but the idea of it ending like that doesn't sit comfortably with me.
Also, if you get down to the metal with VAT there's a lot of ambiguity (opportunity).
My experience is that scale is not a prerequisite for it being economically beneficial.
I'm constantly surprised how many accountants don't seem to even make their clients aware of this option.
I quickly discovered that quarterly VAT returns were a pain, and accountants aren't cheap (for some definition of cheap).
I am also just a one man band at the moment, and de-registered for VAT about a year ago. Unless there are significant savings to be made, or you're over the £82k per annum revenue threshold, factor in the cost of the effort to submit these returns. They really are just a distraction from the main focus of your startup business.
Not to mention all the other time savings (expense receipts uploaded straight from smartphone, tax return & accounts now only take 5-10 mins at end of year using the reports FreeAgent generates, etc etc etc).
I'm not affiliated with FreeAgent (other than my referral code 44gf6bbt, which would give both parties 10% off for life). Just an incredibly satisfied customer; it was by far the best of the 3 or 4 tools I trialled.
I know of a few contractors who registered so they could claim back 20% on a new TV, new iPhone, top of the range gaming PC... Perhaps I'm just too honest but I already had everything I needed (a high end laptop) and didn't like the thought of the extra hassle. Not just the day-to-day bookkeeping side of things (I use Sage anyway) but keeping up with the changes in allowances and thresholds and remembering to submit the quarterly returns. I'd rather just get on with my job!
[0] https://www.gov.uk/guidance/corporation-tax-use-hmrcs-free-f...
the alternative is that they knowingly pay more tax than the law requires of them. which is ridiculous.
don't hate the player, as they say...
i am not accusing facebook specifically, any and all multinationals are guilty in a similar way, be it banks, procter&gamble or newest computer fad beyond-startup company.
and of course there is the moral aspect - everybody can see from raw numbers how utterly immoral behavior this is. in a world where financial crisis didn't end as much as it became new norm.
In this case it kinda becomes a competitive advantage - all things being the same, if one company does "creative" accounting and the other doesn't, chances are the latter can't compete effectively.
Th worst in all of this is that the general public views these companies as smart for exploring loopholes rather than getting annoyed with them.
None of this is to say that one shouldn't be honest. Just be aware of what it costs to be honest, in a system full of loopholes
This is not to say, though, that Facebook on the whole pays its fair share of taxes. It probably doesn't, but a person can't draw many reliable conclusions about this on the basis of this article alone.
Corporation tax in the UK is payable on 'profits subject to corporation tax'. In laymen's terms this is roughly equivalent to to accounting profit.
Employee salaries, bonuses, etc are generally deductible; if you pay me 50K, that's 50K out of your bottom line.
The employees in question likely pay a variety of taxes including but not limited to the standard income tax. In an extreme scenario (recent graduate + highest tax band) that could be 61% rate.
(For comparison, the 2015 rate for Corporation Tax is 20%; so as far as the Exchequer is concerned, a salary payment is preferable, at least in immediate terms).
In summary, I think there's a discussion to be had here about abuse of taxation frameworks but the headline here is bait; the bonuses are irrelevant, any oddities regarding transfer payments etc. are what should be focused on.
edit: My position on taxation in general is that we should be focusing on Capital Gains Tax (taxes the gain on appreciation of assets such as shares) and Income Tax (taxes income from sources such as employment, share dividends).
Taxing corporations seems like it can only ever be arbitrary at some level, because they don't.... 'exist', for lack of a better term. They can be ephemeral, relocate, etc.
Something like a very low "turnover tax" for businesses could potentially work though.
We take about £40bn in corporation tax each year. Total business revenue in the UK is around £3.2tn, so a 1.25% turnover tax would cover it.
Though there might be some practical reasons to tax corporations a bit. It might be easier to prevent tax evasion when you take the money at the source and it might lessen the amount of personal purchases being passed as business expenses to avoid taxes.
We will no doubt shortly have a number of MPs telling us how unacceptable this is and that Facebook need to start paying up.
This all irks me a little.
362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.
Then we can look at those 'stock' bonuses that much of the article seems to point towards. There will likely be capital gains tax paid by employees on the sales of those assets down the line.
The UK has seen a strong economic recovery and remains a global financial centre and the business friendly tax policies of the UK likely contribute heavily towards this.
If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
Arguing that the tax employees pay should be taken into account when calculating a companies tax provision lacks merit. That's employees tax not the companies - this is especially true for companies such as Starbucks where if they were not monopolising high street space by abusing the tax system and small local coffee shop would happily take their space in a fungible manner meaning the employee tax payments would still take place and there would be no net loss for Starbucks not existing.
With a HMRC approved scheme CGT effectively goes away and you only pay CGT after your yearly allowance and only on a real gain - no massive tax bill on underwater share options.
I don't know if this is a US-only arrangement, or if it's used in other countries as well.
You are correct about share options, on which your gain is only the price difference for which you pay CGT (or not). But the liquid tech companies (Google, FB, Twitter) give out direct stock which is taxed on their Fair Market Value at the time of vesting. RSUs are taxed the same way both in UK and US.
Why not?
Let's not pretend all 362 Facebook staff are paying tax via PAYE.
Is it 1992 again?
The choice you present is a false one, the multiplier productivity effect that Facebook employees gain from operating in London as opposed to Dublin far outweighs what Facebook would end up paying in corporation tax under a more reasonable system.
At the end of the day, they aren't a UK corporation, so why should their corporation tax by high?
To be honest, it's hard for me to really form an opinion on this when the information provided by the media is so superficial. For that reason I tend to share mrkmcknz's sentiment. It all smells too much of the kind of trolling that's institutionalised in the media now.
Starbucks get away with the same thing. Amazon intentionally doesn't turn a profit and so evades this whole situation altogether. Anyway Facebooks EMEA is already in Dublin.
I am fond of the constitutional tweeness of Man, Sark, etc, but their situation really does need to be regularised.
Not that I am saying the two are related of course Inocent Grin
The legal wordplay is irrelevant; it has no effective sovereignty if it cannot even put up a semblance of defending its own borders.
Very little of the actual profits of Facebook are actually subject to the 12.5% corporate tax of Ireland.
In a European corporate tax evasion scheme such as Facebook's, there's typically four to five legal entities in two or three countries. The branch making the actual profits (e.g. Facebook UK) pays their profits as "license fees" to an entity Netherlands or Luxembourg that has a flat-rate tax deal. This money is then transferred to the Irelands, where it stays for a few milliseconds before it is wired over to another corporate entity in NL/LUX ("license fees" again), subject to a flat rate fee, and then through ownership deals gets transferred back to Ireland. This trick is called the "double Irish with a Dutch sandwich", and there are dozens of similar, widely-employed schemes.
If this money is actually needed in the US, it gets funneled through one or two hops in Bahamas, Bermuda or Cayman Islands or so.
The net result is not 12.5%, more like (12.5%)^2 - (flat rates paid in NL/LUX). Effectively down to a few percent.
EDIT for brevity.
Afaik Facebook is still overwhelmingly based in Dublin, employing three times as many as in the UK. They likely hire in the UK the bare minimum they really need. So yeah, they've already "relocated" really.
This is the same for pretty much any European corporation, btw. Anyone who could leave for cheaper shores, did so in the '00s. What is left are the essential crews strictly necessary to the job of tapping one of the richest consumer markets on the planet.
The "employment threat" is basically toothless nowadays anyway, because "new economy" numbers are ridiculous in the great scheme of things -- 350 jobs won't change much of anything.
How many of Facebook's 362 UK staff would be unemployed for any significant period if they relocated to Dublin? How many would instead be adding value to a company that paid 20% corporation tax, whilst paying similarly high taxes on a similarly high salary?
If Facebook shut down UK operations then, for starters, Facebook would be paying no tax at all in the UK and Ireland would gain the difference.
If the Facebook UK staff relocated to Dublin then the loss to the UK economy would be exponentially worse.
Can anyone say that for certain?
How do you know, for example, that the same staff they'd employ wouldn't end up working for a company that does pay a large amount of corporation tax, leaving the UK's tax coffers substantially better off than they'd be otherwise?
If the industry in the UK continues to grow then yes we would be better off, but the fear is that more companies would learn from Facebook's example and relocate, taking the growth with them.
Why should Facebook get to enjoy an advantage over 36 companies employing 10 people each at a similar average salary?
>If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
You'd prefer every large company to be based in the UK and not pay corporation tax?
Of course not.
Personally, I think we're long overdue another huge waste like DeLorean coming along.
Why should Facebook get to enjoy an advantage over
36 companies employing 10 people each at a similar
average salary?
From the article:
"[T]he firm also paid its 362 UK staff a total of £35.4m in share bonuses."
That says to me that it'd be worth trying to figure out how to reconcile that against "a pre-tax loss of £28.5m."
1. I didn't say that.
2. What's to stop the SFO office issuing the bonuses?
That's basically what is happening? The company made a loss, so that money came from somewhere else to pay for it.
The pre-tax loss is for the UK operation, not the global entity as a whole.
It seems that the real question is not about what Facebook UK's corporation tax bill should be but how we want to deal with global corporations as a whole and how we want to benefit from that relationship.
My gut feeling is that if you are dealing with the tiny arm of a very successful US company, you are not in much of a position to negotiate.
> 362 Facebook staff on an average salary of say £65,000 will contribute at least £7,230,696.60 in taxes and NI to HMRC. Let's also not pretend that £65,000 is the average salary at Facebook UK, it's likely much higher.
First of all, that's Facebook employees paying tax. Not Facebook. That's their money that they are taxed on and they pay it.
Secondly, no one is asking for Facebook to pay tax on nothing. They should pay it on profits. It was tax payers money that built the Great British Telecommunications Infrastructure that Facebook 100% depends on for it's operations here.
> If I had a choice between Facebook paying £4,327 in corporation tax but employing over 350 highly skilled individuals in the UK, or relocating to somewhere like Dublin due to aggressive taxation policies. I know what I would pick.
No one is going to give up all the money they can earn in a country that has one of the lowest corporation tax rates in the world. Facebook is not going to convince it's key employees to leave Britain, uproot their families and go live in the desert or china. Any threat by a company to leave one of the strongest economies in the world is a pathetic bluff.
Why is this distinction even relevant? Facebook then needs to pay its employees more to make up for the difference. No matter who the government taxes, everyone involved will shift their habits to compensate for it.
In addition, isn't the whole point of corporate taxes to provide money to the country in which that business is making a profit? We may live in a global economy, but we don't all live in a single country. Businesses should be taxed appropriately for their revenues in a country or not be taxed at all. Saying that it's okay to avoid paying taxes because you can afford to move money offshore is hardly a level playing field and gives money to countries based on their advantageous tax codes, not to the profits achieved in that country.
I'm reasonably confident that HMRC is entirely happy with corporations choosing to pay their staff more (and have those salaries taxed appropriately) rather than paying their employees less and paying corporation tax on the profits.
The only reason Facebook doesn't have to pay taxes on that money is because they gave it to their employees (so it counts against profit). The money comes from FB profits, briefly goes to the employees, then to the government. Hence, the government is getting a cut of the money FB is making. What's the problem?
Facebook luxembourg provides a license for Facebook UK to use the facebook logo. The fee for that license just happens to coincide with all the profits Facebook UK made this year.
It's a fictional cost, and totally legal. But its still dirt bag behaviour.
Citizens don't see this behaviour and think "well done, got one over on the government". Most citizens are infuriated by this scumbag behaviour.
And before anyone says "they're just obeying the law" -- we don't know that. They're clearly not evading tax, just aggressively avoiding it, but some tax avoidance schemes haven't been tested in courts yet.
Don't think they've got much to worry about as long as Juncker's in charge of the commission at least. There will be huffing and puffing, but no blowing the house down.
The primary export product of Luxembourg is banking and financial services. They also have some steel production and industry, but effectively without their shenanigans on tax evasion, the country would be bankrupt.
A lot of this has recently come into daylight in the LuxLeaks [0] scandal.
But then in my peer group I'm the only one who thinks that way. Most people would rather want everyone else to be as highly taxed as themselves than lower taxes overall it seems.
If you want to pay the least possible taxes, don't be surprised if your government will do its best to not support you, to not help you, to not listen to you...
"The less you pay, the less you'll get paid.
The more you pay, the more you'll get paid."
I'm all for minimising taxes within the legal framework, but that does not mean I agree with all the legal details.
In this particular case, there is something wrong with how large multinationals are able to avoid paying any taxes at all, it's a major problem in my country, Belgium, as well.
I don't agree with your last statement that people would rather want everyone else to be equally highly taxed than lower taxes overall.
I think people just want their tax legislation to be _fair_, and while that is definitely a fungible concept, these large multinationals are crossing the line for the majority of people.
I feel that's a sad attitude when you're making every effort possible to contribute as little as possible.
At least you're honest about it, it feels like a prevalent attitude.
Even the minimum is more than enough. I'm not talking here about making my own dutch-irish-sandwich where I pay no taxes or just straight out lying when declaring my taxes.
It's more about getting it from 40% to 30% by depreciating my iPhone as an instrument for software development, etc.
But maybe I'm just lacking the moral strength to voluntarily pay more than I need to. ;)
Tax evasion ends up pushing up taxes for everyone else, it's not your government that you're short changing, it's your family, it's your friends, it's your neighbours. This may sound harsh, but it's just the reality of the situation. I hope you will give it a second thought next time.
If I pay more than I'm required to by law then I pay too much by definition.
>Wouldn't it be better if the loopholes were fixed but there was a reduction in tax charged too?
Of course this would be better and ideal. But it's a curious things with politicians. New taxes come easily. But they seldom leave voluntarily.
We're still having an extra tax on sparkling wine here in Germany. It was introduced in 1901 to finance the German Imperial Navy to rival the British Empire [1] ...
>Tax evasion ends up pushing up taxes for everyone else, it's not your government that you're short changing
Yes, but I'm not talking about evasion. Evasion would be illegally saying "I earned nothing" and hiding the money. Tax optimizaton by out-smarting the system is legal though.
[1] https://de.wikipedia.org/wiki/Schaumweinsteuer (German)
There's a difference between the spirit of the law and the implementation of the law. If tax laws were perfectly implemented then the loopholes would not exist, but that doesn't necessarily make the intention behind the laws unclear.
You've decided to follow the legal options available to you rather than honouring the intended use of the laws. You can call it 'tax optimisation' if you want, but it's just tax evasion under a different name. I can understand why it's tempting, I've probably done similar acts before on a smaller scale (things like avoiding customs duty on some posted items), not something I'm proud of.
> "We're still having an extra tax on sparkling wine here in Germany. It was introduced in 1901 to finance the German Imperial Navy to rival the British Empire [1] ..."
If you have such laws, then efforts should be made to remove them. Is it harder to remove them than using tax loopholes? Yes, but it's still the right thing to do. Don't German citizens have the right to start a citizens initiative?
I think this is going to happen anyway, as it's not just Facebook. Governments see it as a reduction in tax, and it's politically safe for a Government to do without getting voted out.
Probably because the law isn't either fit for purpose, or clear enough for someone to litigate.
As far as I'm concerned, if they (are obeying the law) and getting away with it, then articles like these only expose that the government are the incompetent ones.
No UK tax authorities use courts as a measure of last resort. They persuade companies to pay unpaid taxes. See, eg, Vodafone who came to a deal. These bills were billions of pounds.
http://www.telegraph.co.uk/finance/economics/9330102/HMRC-cl...
Although see also this:
http://www.theguardian.com/money/2011/dec/06/hmrc-tax-deal-v...
etc.
It's very expensive to sue these massive companies. It's probably a good thing that deals are made to reclaim some of the tax.
This is saying that they're guilty until proven in compliance. I'm sure you do lots of things every day that haven't been tested in court yet.
I do.
If your tax bracket is 30%, nobody expects you to pay 30% of your income in taxes. No, that's the top marginal rate, and you have deductions, and so on. This could charitably be put in the same realm -- they're getting all of their loopholes that they're dubiously entitled to.
It's sort of like if a speeding ticket costs $200. But you know you can get away with speeding most of the time. If suddenly we had a perfectly-enforced system where you paid $200 every time you exceeded the speed limit, it wouldn't seem 'fair' even though it is, strictly speaking, 'fair'.
However, to cost the average person the same amount, the amount per offense should really go down if enforcement is perfect.
In the same way, the US corporate tax rate is insanely high, but the actual amount major corporations pay is insanely low.
Why? I don't understand why this is considered acceptable. I'm expected to pay the full whack of tax (income, VAT, etc), but somehow it's taken as given that corporations will pay 'less than they're supposed to'. How can we fix anything if this is the prevailing attitude?
... because we don't call out those that do, praise them and give them our custom.
Exactly, they take it from "mild annoyance about the state of the world" through to full-on rage.
I'd like to know whether - annoyingly - even if they knowingly bought about huge tax reform, whether the short terms gains of doing this now would still make it worthwhile. Sadly, I can't see any way that it's not worth abusing whenever possible.
Someone said that "paying tax is for poor", and this goes a long way to support it.
I don’t think the UK is being shortchanged all that much. When Google/FB et al were able to shift Ad sales to low-VAT regime holding companies, that was definitely taking the piss. This? Meh.
That would mean everywhere there is a real transaction, that generates greater value, that is where the tax is. It would also make it impossible for big companies to do tax evasion - since you limit the effects to the 'leaves' of the tree that is the economic system, you can catch the money before it escapes put the company 'tree' structure, out of the reach of the state.
It doesn't say the VAT rate on the label, but you can figure that out from your receipt after solving a bin packing problem :) Receipts contain a listing of the different VAT rates (e.g. in Germany, x€ at 19% and y€ at 7%)
Er, that's how nearly everywhere does it. And is irrelevant to whether VAT or income tax should be the main way to raise money
If someone is against it they're most welcome to vote against it.
However this is already the case in Europe because the VAT rate is so high. For example for France, tax revenue in 2014 was 74B€ of income tax, 39B€ of corporate tax, and 139B€ of VAT. I'm guessing this is a political game where you have to keep income tax high enough so that the inequalities are not too obvious.
Of course the rules are a bit fool about what is essential, and VAT is still a terribly regressive tax.
The poor would pay considerably more of their income as tax than the rich.
And yes, there are ways to do tax evasion with VAT. There was a court case in the UK about whether Jaffa Cakes were a cake or a biscuit (because there are different VAT categories)
I'd imagine a large number of people would form sole-trader companies and put every last expense possible through it.
A boon for accountants!
If I could argue that if FB was headquartered in SA it would be paying at least 20% effective taxes, then surely the issue would be that the specific countries (US and EU) have lenient tax laws. Companies will keep gaming the system if lawmakers don't have the appetite to ignore company lobbying and do what's best for the income of their countries.
Whether the issue is that they don't want to lose the business of these tech companies is something else. South Africa started imposing VAT on digital services sold by foreign companies last year. As a result my Google Play Music subs started costing me 14% more, funny enough as I technically shouldn't even be having All Access as I'm in an 'unsupported country'. Apple still charges me the same for music, which means someone had to take the loss to keep the value the same. Nonetheless, some people are unhappy, but our country gets to benefit with the extra 14% collected.
That's because the Facebook paid out those profits to employees as bonuses. That wiped out the corporate profit but the employees have paid income taxes which are much, much higher than corporation tax.
This is significantly different from the corporate tax dodging companies like Amazon EU do by bribing EU states into letting them have a super-low corporate rate if they put all the EU books through that country. Not saying that Facebook aren't also doing that, that's just not what this is about.
I think corporations are incredibly immoral institutions (due to skewed incentive structures), however - ultimately it's a collection of investors, owners and employees.
Why not be honest and tax the corporations on the outflow of capital? ie. dividens, wages and sales tax
Corporate tax is ultimately a populist hidden tax on the whole economy b/c no one "feels" it. If you raise it everyone will whoop and cheer (b/c fuck big co!) and not appreciate it's impact on salaries or retirement funds.
Maybe I'm missing something?
The law in question is the Finance Act of 2008.
EU is totally broken, one market with one tax per country; Obviously, all companies go to the country with less taxes. And the different is not 1% or 2% is like 10% or more.
Another reason for Ireland was that there was a very lax view of European Data Protection law there.
So £35m was distributed as income towards the employees. This means the employees are paid extra, have more money to contribute and spend locally, and have paid the correct income taxes on the bonuses. How is this a bad thing?
Because the amount of corporation tax paid makes a better headline?
If they don't want to behave like responsible citizens they can fuck off.
EDIT: This looks like snark, but it's not. If I'm wrong I'm sorry.
Paying their employees an extra £96,000 (on average) per head isn't them being responsible? The money is being paid to UK employees who will (in theory) spend it in the UK. I'd have a problem if they did what Apple are doing in the US - sitting on wads of cash because it's too expensive to bring it back into the states, but this is a win for everyone. The money is redistributed back to the employees, and taxed appropriately, how is that a problem?
Also you can make the arguement that its the employees themselves paying these taxes, not facebook.
The reason the share bonuses are of some interest is that it seems odd to most people if they give away share bonuses worth 35.4m if they are genuinely losing that much money on the UK market.
Yes, it's possible, but the seemingly more likely explanation is that Facebook like most other large international companies are routing their revenue from the UK market through a more tax efficient separate corporate structure.
With numbers like this, it'd be easy to morally justify looting, and other otherwise criminal activities against both these types of corporations and the government that allows them existence. It'd seem to start tearing down at the social fabric in many countries, not just the UK, where the poor are actually taxed more than these corporations. With just a little more poverty and misery, I wouldn't be surprised if at some point we started seeing violence and social upheaval as people realize they have no other recourse.
And who could blame people if they reacted this way?
The similar thing happens here in the US at the State level. It isn't uncommon for large companies to pack up and move their operations to lower tax States, or to actually bargain with individual States over who will give them the best deal. Here in Massachusetts, Fidelity packed up and left for North Carolina and Texas - they found it was cheaper to move employees than pay the taxes.
This will likely continue as long as different countries (and States) have different tax schemes - and that isn't going away anytime soon.
Soon we'll probably have a renewed call for a lower tax rate here in the US for companies to repatriate those revenues.
If you have a problem with tax "loopholes" then fix the tax law. Don't blame a business for paying only the tax it is legally obligated to pay. Would YOU pay more taxes than you have to?
Most people pay more tax than they need to because they don't have access to devious accountants who create excessive tax-avoidance schemes.
Most of these schemes are neither normal tax planning nor a bit of tax avoidance. They are aggressive tax avoidance that exploit the regulations in weird ways. They're legal, but only because the regulations were malformed (and will get re-made) or because the schemes haven't been tested in courts.
And the way UK tax authorities work is rightly to use courts as a measure of last resort, preferring negotiation instead.
Why not get mad at the politicians who created the tax code?
Would you at least agree with the statement that "Not all legal actions are moral and not all moral actions are legal"?
Morally I believe a business should only pay it's required taxes. Obviously you disagree.
The breadth of complexity and the depth of thought that goes into these corporate structures transcends and notion of "simply doing business"
Gonna quote a post from reddit:
"Facebook does do things honestly & by the book. It just so happens that they have a presence in multiple countries around the world. Due to this Facebook Uk® must pay massive amounts to lease the licenses for software & intellectual property from Facebooks conveniently placed HQ in the lowest tax capitals in the world. Doing so at a price Facebook themselves chooses perhaps based on quarterly earning estimates runs at an amazing cost almost siphoning off all profit. So the resulting entity which owns all the IP / leasing then pays tax in the country it is in on its earnings. Now they may be incorperated in a place with minimal corporation tax & simply keep a post office box there, but I assure you that's entirely the focus of their operations & is absolutely not just in place as a tax avoidance tactic. Now if you dislike this you can absolutely tell them it's unacceptable. I'm sure politicians will be telling them off and using them to get press for .. oh 7-14 days until people move on & forget about it. At which point those same politicians won't change anything which impacts the practices at all."
If every country got their "fair share" of revenue the total taxes on $1.00 would be approximately $1.50.
Immigration from Europe > Leave Europe (we're an island!)
Can't deport or be cruel to alleged terrorists > Leave Europe (we don't need the European Convention on Human Rights)
Can't stop corporations playing the tax system > Leave Europe (the borders become hard, the taxes unavoidable)
Our press don't really need more reasons to whip up the anti-EU mob, corps shouldn't help them do so.
Source: https://www.reddit.com/r/worldnews/comments/3ofo13/facebook_...
Isn't that a tax paid by the employee, not employer?
Starbucks tried to say that they paid a lot in VAT, but that's a tax paid by the customer not the business.
However, there is also employers NI which is definitely paid by the employer, at 13.8% over a low threshold.
>Isn't that a tax paid by the employee, not employer?
It's technically both - there's an element of National Insurance tax paid by the employer and an element payed by the employee (then the employee pays income tax on the remainder). The core of your point is correct, though, the bulk of the tax paid as a result of salaries is taken from the employee
I don't know why people still fall for this. The government may say whatever it wants, but the value of the paycheck is market determined which means taxes are taken from both sides. Unequally, of course, depending on how (in)elastic work supply and demand are.
So is every other company operating in Europe, and they have to pay their corporate taxes. But the multinational corporations evade their corporate taxes and get an unfair competitive advantage.
A practical example: a hamburger and fries from a local franchise costs 2 eur (about 20%) more than one from McDonalds, because the latter doesn't pay their taxes to this country, using the same "license fee" trick as Facebook, channeling all of their profits through Netherlands, Luxembourg and/or Ireland.
These tricks are known with names such as "double Irish with a Dutch sandwich".
Facebook is not operating at a loss in the UK or elsewhere. That's just their creative accounting after diverting funds offshore to tax havens in the form of royalties.
The exact same scheme is employed by the aforementioned hamburger franchises.
This is so wrong. Close these loopholes so a million dollar accountant and a regular accountant play by the same rules.
It's as if a soccer didn't have an offsides rule and then some complained about teams taking advantage of offsides. Change the law and move on. Don't complain about companies exploiting a huge hole you created.
At some point you have to ask yourself "why are companies doing this?" and fix the root cause.
Is that a problem? I honestly don't know. What is the intention of corporation tax?
I would think that the "who uses our streets and is protected by our police has to pay for it" tax is VAT. How is FB doing in terms of VAT?
- companies need to be treated as "unitary" - that is passing profits around internally should not affect the tax paid
- profit is the least definable of all measures. Revenue is something companies don't like to lie about.
- this change will have to come to small and even consumers to be fair (my wife and I are a unitary item ? Can we share tax allowances?)
- even if we decide on treating companies as one black box, choose a better metric to tax on (revenue, dividends) we still do not have a formula for distributing across national borders. Should the US get all Facebooks profits? No. Should Facebook pay UK based on number of UK users it has? Doubtful. So ....
We are not going to see this end well - unitary treatment seems obvious but a international agreement on how to divide tax will need another two world wars to sort out.
I think it's worth pointing out that even from the perspective of most businesses this situation sucks. Smaller companies or startups lack the resources to benefit from tax avoidance schemes so are at a disadvantage to their larger competitors.
And if you do start a company that is growing large you don't really have much choice but to start doing it too. You won't be able to compete if you are paying 20% and the competition is paying 2%. You have to do it because everyone else is doing it.
Taxes are always as result paid by the consumers/employees, never by "businesses".
Money saved by Facebook corresponds to money saved in our pockets.
It seems a simple solution but there is probably not much lobbying money in the politicians bringing it about.
You have a complicated legal framework and try to optimize in it. At the end of the day I'd still wonder...gee is it "ok" that we pay only that much but like I said I'd like to see how this general problem is approached.
E.g. British companies doing the same thing in the US:
http://www.washingtonpost.com/wp-dyn/content/article/2006/09...
Don't hate the player, hate the game.
Aslong as it is legal great, mabye the UK should fix some tax laws if that is the case, if it is not legal fine them..
I might be misinterpreting something, but I think we should be careful to accuse them of abusing loopholes if they're still paying such a high rate overall.
Whoa, what? That's some hefty tax for the 26k bracket!
Sounds like a bunch of ungrateful children to me.
This might mean they shuffled money around to avoid paying UK taxes, i.e. they engaged in https://en.wikipedia.org/wiki/Transfer_mispricing potentially breaking the law.
Most likely because the case is not so clear: it is far from clear that they engaged in any transfer mispricing.
They don't make actual losses - they pay all of their profits as "license fees" to some offshore entity to get their accounting show no profits. This probably means Luxemburg or Netherlands where they have a personalized deal with the tax authorities and the taxation of immaterial property is very low.
In reality they made a shitload of money, and are using creative accounting to make it look like they made a loss. This is tax evasion, not making a loss.
In contrast, governments are violent organizations specialize in coercion. Governments extract their revenue by force or threat of force and use their revenue to fund institutions and projects that people would not pay for voluntarily. Governments maintain power by direct force (police and military), by deceit and misinformation (control of the money supply, compulsory education), by monopolizing necessary institutions and services (dispute resolution, security), and by appealing to people's greed and envy. It is nearly impossible to opt out of government services, especially in the sense of not paying for them (taxes).
Pick one. You can't have both.
"The average UK salary is £26,500 on which employees pay a total of £5,392.80 in income tax and national insurance contributions."
Corporation tax and personal tax are not the same thing so I don't see how they can be compared. In fact, in terms of taxes paid to HMRC, they would have been paid more tax overall.
However, considering they made a pre-tax loss, they should have probably reviewed those payouts of which I assume was shared amongst those on top.
I quite agree about the attitude expressed here (Let's Just Give Up on Taxing Big Corporations, http://www.bloombergview.com/articles/2015-10-08/multination... ). It's not fair but there's not that much that can be done.
I am not exactly sure if similar means as described in the article I've linked would change much.