Summary:
Facebook has been accused of using a complicated series of shell companies in tax havens to avoid billions of dollars in corporate tax. The company’s filings for Facebook Ireland through which all of its profits outside the US are channeled allow it to make gross profits by moving large amounts of money to other subsidiaries in the form of royalty payments.
Allegations:
- Facebook uses its Irish subsidiary to reduce its liabilities to HM Revenue & Customs and other European tax regimes.
- The social media giant is structured in a manner that companies buying advertisements on the UK website, have to pay Facebook Ireland. This allowed Facebook Ireland to make gross 2011 profits of £840 milllion – or £3.1 million per each of its 287 staff. Despite the high gross profit, Facebook Ireland was able to cut its tax bill to just €3.2 million by using an accounting technique called the "Double Irish".
- The revelations led to a lot of anger against giant US companies paying very little tax in the UK despite making large profits in the country. This led to the introduction of the 'Google Tax' in 2015 which imposed a levy on company profits that are routed via 'contrived arrangements' to tax havens.
- Facebook moved nearly £750 million to the Cayman Islands and its Californian parent in licensing and royalty payments. After the transfers, Facebook Ireland reported a £15 million annual loss, despite it accounting for 44 per cent of the social network's $3.15 billion (£1.95 billion) revenues.
Defence:
- A Facebook spokeswoman said: "Facebook complies with all relevant corporate regulations including those related to filing company reports and taxation."
- The company said its choice to base its international headquarters in Ireland as it was the "best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe."