Business Technology

Thursday 27 October 2016

Facebook gets €12.5m tax credit, after vowing to pay more to taxman

James Quinn

Published 10/10/2016 | 07:48

Facebook CEO Mark Zuckerberg and his wife, Priscilla Chan: the couple have pledged €3bn for medical research. Picture: AP
Facebook CEO Mark Zuckerberg and his wife, Priscilla Chan: the couple have pledged €3bn for medical research. Picture: AP

Facebook's UK arm ended 2015 with an £11.3m (€12.5m) credit to offset against future tax payments just months after vowing to contribute more to the Exchequer. 

  • Go To

Despite reporting a worldwide profit of $6.19bn (£4.97bn), accounts for the social network's British holding company show that it ended the year with a £11.3m tax credit, compared to a charge of £4,327 in the prior year. 

Although Facebook UK did pay £4.17m in corporation tax for the year to December, accounts just filed at Companies House show that it ended 2015 in credit thanks to accounting rule changes. 

The disclosures are likely to reignite the row over the amount of tax paid by large US multi-nationals in the UK, following recent comments on the subject by the Prime Minister. 

The credit is the result of Facebook being able to offset some £15.5m of payments linked to its bonus scheme, meaning it ended the year with an £11.3m tax credit.

Although that does not mean HMRC owes that amount to Facebook, the San-Francisco technology company will be able to use that credit to offset against tax due on future profits. 

The entirely legal deferrals link to changes in HMRC's own accounting rules which Facebook adopted for the first time in the 2015 financial year.

New accounts show that Facebook UK made a loss of £52.5m before tax  for 2015, on sales of £210.7m.

This compared to £28.48m on sales of £104.9m in the prior year. For that year, Facebook paid £4,327 of corporation tax. 

Losses after tax stood at £41.17m in 2015 from £28.5m in the prior year.

That loss came in part because Facebook paid £71m towards a share-based bonus scheme, the equivalent of £104,105 for every member of its UK workforce. The bonus payment equated to £35m in the prior year.

Last week, Theresa May used her speech at Conservative Party conference to highlight the issue.

In what was seen as a thinly veiled attack on Facebook and Apple, she said she was putting people in positions of power on notice that a “change must come.”

“It doesn’t matter to me who you are. If you’re a tax-dodger, we’re coming after you,” she promised.  “An economy that works for everyone is one where everyone plays by the same rules.

“So whoever you are you – however rich or powerful – you have a duty to pay your tax. And we’re going to make sure you do,” she vowed.

The revelation comes just six months after it emerged that Facebook, which is thought to have more than 30m British users, committed to paying more tax in the UK.

Rather than booking its UK sales through Ireland – a common tactic used by multi-nationals due to lower corporation tax rates over the Irish Sea – it told customers it would begin to bill them from the UK.

In March of this year, Facebook wrote to large UK corporate customers saying it would begin to bill them from the UK from April 1.

"What this means in practice is that UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook UK will then record the revenue from these sales,” read the letter.

"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 memorandum continued.

Although the accounting treatment adopted by Facebook is entirely legal and commonplace, the fact that the company will benefit from such deferrals  is unlikely to be welcomed by tax campaigners and politicians alike.

For the period the latest accounts refer to – the 12 months to December 2015 – Facebook employed some 682 people in the UK, up from 362 a year earlier.

Since then it has recruited several hundred more, and  now employs more than 1,000 people – mainly engineers and sales and marketing specialists - and is building a new London office to accommodate them.

A Facebook spokesman 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.

The UK is now home to some of the most innovative technologies in the world. We pay all the taxes that we are required to under UK law.”

The spokesman confirmed the £4.17m corporation tax charge is payable. 

A HMRC spokesman said:  “HMRC is clear that multinational companies must pay the tax that is due and we do not settle for less - everyone must play by the same rules.

“The government has led the way in taking action to close loopholes and ensure multinational companies pay their fair and legal share of tax."

Read More

Promoted articles

Editors Choice

Also in Business