Facebook paid just £4,327 in corporation tax in 2014 last year it has been revealed, less tax than would be paid on the average UK salary of £26,500.
Corporation tax
Corporation tax, the amount of tax paid by companies on profits, is currently 20% for profits of £300,000 or less, and 21% for profits above £300,000. Chancellor George Osbourne has repeatedly cut the tax from 28% when he came to the treasury, to the level it is today, but has also insisted that firms must pay their fair share.
Facebook defended its position in a statement saying “We are compliant with UK tax law, and in fact in all countries where we have operations and offices. We continue to grow our business activities in the UK.”
The amount of corporation tax paid by Facebook in the UK has in fact gone up from the previous two years when it paid nothing.
The most recent Companies House filings show Facebook registering a pre-tax loss of £28.5m, staff were paid an average of £96,000 in bonuses.
Earlier this year, Facebook reported a 13% increase in active users, with 1.39bn active users, a 34% increase in its fourth quarter profits of £462m and an increase in advertising revenue to £2.33bn.
Diverted profits
In March this year, George Osborne announced plans to introduce the ‘diverted profits tax’, the so called ‘Google Tax’ in a bid to stop larger multinationals diverting profits generated in the UK other countries where lower rates of tax are payable on profits.
There has been increasing concern over the low rates of tax paid by these multinationals to the UK exchequer. In 2013, there was outrage when it was revealed that Starbucks had paid no corporation tax between 2009 and 2012, despite sales of £400m in 2011. Google and Amazon have also faced similar criticism.
EU finance ministers have already agreed to increase the amount of information shared following the LuxLeaks scandal last year where Luxembourg, known for being a tax haven, allowed companies to direct profits through the country and reduce tax bills.
Increased scrutiny
The diverting of profits, though highly controversial, is a legal form of tax avoidance, but is facing increasing scrutiny globally with the EU investigating whether these tax arrangements equate to state aid to some companies.
The companies implicated defend their position pointing to legality of their actions, and that lower tax payments enable them invest more heavily in growing their business activities, creating employment and economic growth in the countries they operate in. However, in times of huge public spending cuts, and with only 362 staff in the UK, this argument is unlikely to be very persuasive in the case of Facebook.
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