Facebook Enters Ethical Tax Debate

Social network company Facebook has been dragged into the ongoing debate concerning the morality of tax avoidance.

Companies House recently published the accounts of Facebook UK Ltd which showed a turnover for the year ended 31st December 2011 of £20.4 million. Despite this Facebook only paid UK corporation tax of £238,000.

Enders Analysis, an independent research firm, estimated that Facebook's UK sales for last year were more in the region of £175 million as it continued to attract advertisers.

The Independent says the reason Facebook is able to keep its UK tax bill down is because it diverts a large portion of its advertising sales to its office in Dublin in Ireland, a country which has a lower rate of corporation tax.

Facebook Corporation Tax

Since it established its UK office in 2007, Facebook has paid aggregate UK corporation tax of £1 million on sales of approximately £340 million during a four year period.

Other online companies such as Amazon, Apple, eBay and Google also arrange their tax affairs in a similar manner to Facebook by channelling substantial UK revenues through countries with low tax jurisdictions.

During the period 2004 – 2011, Google INC paid only £16.8 million in corporation tax despite generating UK sales of £11 billion.

Avoid Paying any Corporation Tax

By locating its headquarters in Luxembourg, the online retailer Amazon, was alleged to avoided paying any corporation tax on £7.6 billion of UK revenues and was subjected to HMRC investigation.

Every one of these web based companies maintain that they observe all local laws, create jobs and thereby contribute to the local economy, and should not be blamed for structuring their affairs in the most tax efficient manner and which is perfectly legal. The counter argument promoted by The Independent is that these companies have a significant financial advantage over local rivals. This, in turn, is stifling for creative industries as the UK is being deprived of revenue which could be reinvested.

The offshore arrangements used by these companies has provoked an outburst from Labour and Treasury Committee member, John Mann, who has labelled such tactics as “disingenuous and immoral”, and saying, “They benefit enormously from the country's internet infrastructure but do nothing to fund it. It's like driving a car with no tax. We wouldn't stand for it on our roads so why stand for it the net?”

Mr Mann proposed that a “traffic fee” be imposed on internet-based companies to stop them from taking advantage of the UK's infrastructure without making a contribution. He said, “The British taxpayer is currently spending a fortune on upgrading the country's broadband network, something that these businesses will benefit from enormously. It's only right they should contribute.”

The Independent believes that the British public 'should be a lot angrier that some of their favourite companies are dodging tax.' What the newspaper doesn't suggest however is to whom that anger should be directed, the companies or the Government, who can actually do something about the situation if they consider it unpalatable.

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