Facebook's 'outrageous' UK tax bill puzzles financial experts

Facebook paid only £28.5m in tax in Britain last year, according to freshly released accounts that have baffled experts and drawn fire from a prominent tax campaigner.

In a filing with Companies House, the firm’s UK arm reported gross sales, mainly to advertisers, of £1.6bn for 2018. Of that, only half is what it called “recognised revenue”. With various expenses taken out, Facebook’s taxable profit amounts to £96.6m.

Two tax lawyers who spoke to The Independent on condition of anonymity said they could not fully understand the accounts.

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But even an accounting expert, best-placed to make sense of the document, was mystified, saying it is “opaque”.

Prem Sikka, professor of accounting at Essex Business School, tweeted: “Corporate tax havens: Facebook’s UK operations paid £28m in tax last year despite record £1.6bn in sales. Ultimate controlling entity is in Delaware. Accounts are legally compliant but opaque; intragroup transactions – key to profit shifting – hard to see.”

Many multinational companies set up offices in countries with the lowest tax rates and shift their profits there.

Dame Margaret Hodge, a Labour MP who chairs the All-Party Parliamentary Group on Responsible Tax, criticised the amount of UK tax paid by Facebook as too low, following a tax bill of just £7.4m in 2017.

“One year later and little has changed,” she tweeted. “These big corporations simply must pay more tax. They rely on our infrastructure, our expertise and our sales, so they must pay their fair share into society. Still outrageous.”

The challenge of taxing global digital companies, such as Facebook, Amazon and Google, is particularly acute as they do not need to be physically present in a country to sell their services there. Existing international tax rules, dating back to the 1920s, mean companies can be taxed only in countries where they have a physical presence.

On Wednesday, the Organisation for Economic Cooperation and Development published a proposal that would break with that principle by requiring companies to pay tax wherever they have “significant consumer-facing activities” and generate their profits, whether or not they are located there.

Arun Birla, tax partner at law firm Paul Hastings, welcomed the proposal, noting the current global push “for equitable international taxation rights and combatting aggressive tax avoidance through profit shifting”.

Steve Hatch, vice-president for Northern Europe at Facebook, said: “The UK is now one of Facebook’s most important hubs for global innovation. We continue to grow and invest heavily in the UK and by the end of the year we’ll employ 3,000 people here. These high-skilled jobs are not only working on products like WhatsApp and Workplace but also help develop technology to proactively detect and remove malicious content from our platforms. Businesses across the country use our platforms to grow, and revenue from customers supported by our UK teams is now recorded here so that any taxable profit is subject to UK corporation tax.”