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Friday, April 19, 2024

Facebook enjoys £11m UK tax credit despite £5bn global profit

Facebook’s UK business generated an £11.3m tax credit last year, despite the world’s largest social network making a global profit of $6.19bn (£4.97bn), according to the latest company accounts.

The credit at Facebook UK Ltd can be offset against future tax bills and is likely to raise further questions about whether the $370bn US company is paying its fair share towards Britain’s public finances.

Last week, the prime minister, Theresa May, told the Conservative party conference: “If you’re … an international company that treats tax laws as an optional extra … I’m putting you on warning. This can’t go on any more.”

Until April, all Facebook’s UK advertising sales were routed through its operations in Dublin, reducing the UK tax bill. Activities at Facebook UK, meanwhile, were confined to selling “sales support, marketing services and engineering support” to other companies within the Facebook group.

But in that month, Facebook’s UK sales activity was transferred from Dublin to London, following the then chancellor George Osborne’s introduction of a punitive rate of tax for multinationals deemed to be artificially shifting British sales overseas.

Ahead of the change, turnover at Facebook UK Ltd doubled in 2015 to £210m, but this did not include a penny of the hundreds of millions of pounds in sales income that the wider group is estimated to have received from British advertisers.

Losses for Facebook UK increased from £28.5m to £52.5m in 2015. As a result, the accounts showed that Facebook UK ended the year with a tax credit of £11.3m, compared with a tax bill of £4,327 in 2014.

The company reported a £4.2m tax charge for 2015, as well as £15.5m of deferred tax credits, linked to staff share awards. Last year, Facebook UK paid employees £71m in share awards.

The accounts show that Facebook UK expanded dramatically last year, doubling staff and turnover, in advance of the group abandoning its controversial tax structure for British advertising sales.

The number of people working for the business grew from 362 to 682 in 2015, including the addition of 200 staff within its software engineering team. Since then, a spokesman for the company said headcount has grown further, with more than 1,000 people employed by Facebook in the UK.

Staff have been taken on in part to help Facebook UK sell advertising directly to major clients, who had previously dealt with Facebook Ireland.

In a memo to UK staff in March, Facebook said: “On Monday, we will start notifying large UK customers that from the start of April, they will receive invoices from Facebook UK and not Facebook Ireland.

“In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook’s operations in the UK.

“The new structure is easier to understand and clearly recognises the value our UK organisation adds to our sales, through our highly skilled and growing UK sales team.”

As Facebook UK has taken greater control of sales to British customers, it has hired new staff, many of whom are expected to move into its new offices at One Rathbone Square in central London, when construction is finished next year.

These changes mean that Facebook UK’s next set of accounts are likely to show a more dramatic jump in revenues. There is also expected to be an impact on how much UK tax is paid, although a number of factors, including the £11.3m tax credit, could mean that it is some time before Facebook’s UK tax bill rises substantially.

In a statement, Facebook said: “We are proud that in 2015 we have continued to grow our business in the UK and created over 300 new high-skilled jobs … We pay all the taxes that we are required to under UK law.”

In January, Facebook warned US investors in its annual report that the UK operation could face higher tax bills in the future.

“Many countries in Europe … have enacted new laws that could significantly increase our tax obligations … or require us to change the manner in which we operate our business. For example, in 2015, the United Kingdom enacted the diverted profits tax … which could increase our tax obligations,” it said.

The reaction among large technology companies to Osborne’s diverted profits tax (pdf) has been mixed. Google and eBay believe that they have found a way to continue sending UK sales overseas without falling foul, but Amazon and Facebook have chosen to unwind such arrangements.

When he first unveiled his efforts to tackle multinational tax avoidance in 2014, Osborne said: “Some technology companies go to extraordinary lengths to pay little or no tax here … If you abuse our tax system, you abuse the trust of the British people. And my message to those companies is clear: we will put a stop to it.”

Courtesy The Guardian