The Guardian has reported that:
Facebook will pay millions of pounds more in UK tax after approving fundamental changes to its corporate structure in Europe.
Starting in April, the world's largest social network will change its policy so that revenue generated from its largest advertisers displaying content on Facebook will be routed through the UK rather than Ireland. The change will generate higher taxable revenues in Britain and forms part of the US company's plan to mitigate heavy criticism of tax avoidance.
I have already declined three five television interviews on this: there are just days when work has to be done, but let me summarise what I would have said here.
First, there is nothing magnanimous about this. Ireland has been forced to scrap the Double Irish tax arrangment that I helped draw attention to so long ago when first writing on Google and its tax affairs. Facebook did, as a result, have to bite the bullet on this issue sometime soon. It has just decided to get on with it and try to claim some credit as a result for something it had no choice but do.
Second, the fact that Facebook can decide to do this and so in all likelihood pay more tax shows that these structures were always voluntarily adopted with the sole purpose of avoiding tax. No one is suggesting Facebook will suffer any loss of revenue as a result of this change. This gives complete lie to Google's current claim that it could not pay more tax in the UK. Of course it could. They really would be wise to take note.
Third, this shatters the HMRC claim made only this week that the structure Facebook and Google have been using is just the way corporation tax works. No it isn't. They really need to smell their Starbucks.
And last, this shows consumer pressure and civil society action is changing tax. Without either there would be no such reform and the OECD would not have done its BEPS project that has c0ntributed to this change. The win is ours, and society's at large.
This is good news. The remaining questions are why did it take so long and when will others, Google included, follow suit?
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All good points Richard, especially the last. And since you are one of the people whose led the attempts by civil society to stop this, congratulations are in order. Well done.
Thanks
What reason is there to believe that this will result in a significant increase in Facebook’s taxable income in the UK.
For the sales company in Ireland costs are 99.7 per cent of revenue. There is the usual cost of sales, staff and salaries and general expense but by far the largest expense is the royalty fee paid for using the Facebook platform. For Ireland it seems the sales company is remunerated on a cost-plus basis with the residual paid for the license to use the platform.
If Facebook’s soon-to-be-in-existence sales operation in the UK incurs similar costs to the existing Irish sales operation then the amount of additional CT to be paid would not be significant. It is possible that HMRC will take a different view on the quantum of the royalty but that remains to be seen. Then there are a whole set of new questions to be answered.
This is the big question mark
Will HMRC prove to be as light touch as Ireland?
Right now I suspect so
“Third, this shatters the HMRC claim made only this week that the structure Facebook and Google have been using is just the way corporation tax works.”
No, it doesn’t shatter anything.
HMRC are right. That was the way tax worked at the time. As you yourself say, the ending of ‘double Irish’ and the BEPS/Diverted Profits Tax have changed things.
Unless you can point out which tax law was being broken at the time (and you can’t because none was) then HMRC are right.
When Facebook start paying more tax in the future it will be because that’s the way tax will be working then.
Pardeep
Are you a paid PR agent?
No.
I see you cannot answer my point.
I have answered your point, many times over
The blindness is all yours
If that is the case then Pardeep why are they restructuring to pay more tax given that no new tax laws have been passed and the provisions of the Finance Act 2016, designed to get around these deliberately designed and created structures to thwart the will of Parliament and the democratic process as well as freeloading off the rest of us PAYE and SME taxpayers, have yet to go through Parliament?
As you would know if you bothered to get off your backside and read it.
Have they suddenly changed themselves from a private for profit entity to a philanthropic charity and forgot to to tell everyone?……
………Nope. Just checked the Charity Commission site and they are not registered as such.
How do you know they will pay more tax? Probability is they won’t.
How have they thwarted the will of Parliament if they are compliant with the law?
a) We don’t
b) Go and read the GAAR
“How have they thwarted the will of Parliament if they are compliant with the law?”
Glad you asked.
Let’s look at some of the content of the Overview of legislation in draft for the coming 2016 Finance Act:
On Corporation Tax…..
“2.7. Hybrid mismatches
As announced at Autumn Statement, legislation will be included in Finance Bill 2016 to deal with hybrid mismatches. This follows a consultation announced at Autumn Statement 2014. The legislation introduces rules to neutralise the effect of hybrid mismatch arrangements in accordance with the recommendations of the OECD’s BEPS project. The aim is to tackle aggressive tax planning, typically involving multinational groups, where either one party gets a tax deduction for a payment while the other party does not pay tax on the receipt, or where there is more than one deduction for the same expense. The legislation will have effect from 1 January 2017. A summary of responses to the consultation was published on 9 December 2015. (Draft clause 33 and TIIN)”
And…..
“2.9. Leasing and Capital Allowances Anti-Avoidance
As announced at Autumn Statement, legislation will be introduced in Finance Bill 2016 to counter avoidance of tax through artificially low disposal values for capital allowances purposes and non-taxable payments in arrangements involving transfer of lessee obligations. This measure will ensure that the disposal value is increased so that there is no longer a tax advantage and that payments received for agreeing to assume lease obligations are taxed as income. The changes will take effect for arrangements and agreements on or after 25 November 2015. A tax information and impact note (TIIN) for this measure, together with draft legislation and draft explanatory notes, was published on 25 November 2015. (Draft clauses 35 and 36 and TIINTax avoidance and evasion”
Again, section 8 on tax avoidance strategies”
“8.1. Anti-Avoidance: Penalties for the General Anti-Abuse Rule
As announced at Autumn Statement, and following consultation over the summer, legislation will be introduced in Finance Bill 2016 for a new penalty of 60% of tax due to be charged in all cases successfully counteracted by the General Anti-Abuse Rule to create a disincentive from entering into abusive tax avoidance. The government will also make small changes to the GAAR procedures to improve its ability to tackle marketed avoidance schemes. A response to the consultation was published on 9 December 2015. (Draft clauses 60, 61 and 62 and TIIN)
8.2. Serial Avoiders and Promoter Of Tax Avoidance Schemes
As announced at Summer Budget 2015, and following consultation over the summer, legislation will be introduced in Finance Bill 2016 that will tackle those who persistently enter into tax avoidance schemes that are defeated by HMRC. After the first such defeat, the taxpayer will have to comply with a special reporting requirement and further defeats will result in a surcharge. After at least four defeats the names of the defeated avoiders can be published, and, for those whose defeats concern the persistent abuse of reliefs, restrictions on them accessing certain tax reliefs for a period will be applied. These measures will come into effect on 6 April 2017.
Legislation will also be introduced in Finance Bill 2016 to widen the Promoters of Tax Avoidance Schemes (POTAS) rules. Under the legislation a promoter may be made subject to the reporting requirements and obligations of the POTAS regime if their schemes are regularly defeated by HMRC. This measure will come into effect at Royal Assent of Finance Bill 2016. A response to the consultation on these measures was published on 9 December 2015. (Draft clauses 63 and 64 and TIIN)”
Let’s pick some of the highlights:
– “to tackle aggressive tax planning, typically involving multinational groups”
– “to counter avoidance of tax through artificially low disposal values for capital allowances purposes and non-taxable payments in arrangements involving transfer of lessee obligations
– “General Anti-Abuse Rule to create a disincentive from entering into abusive tax avoidance”
– “will tackle those who persistently enter into tax avoidance schemes”
It’s not difficult to understand why the Government of the day are introducing new finance legislation through Parliament when looking at the rationale contained herein. Even through the arcane language of the Parliamentary legislature one can see that the objective is to prevent the will of previous Parliamentary finance legislation being deliberately thwarted by those who think it’s a wizard wheeze to freeload off the rest of us PAYE and SME taxpayers.
Not quite sure what the cheerleaders and excuse makers of these freeloaders get out of the sophistry they practice on their behalf?
Do you agree with the BBC line that the Diverted Profits tax was a major reason the Facebook has moved now?
http://www.bbc.co.uk/news/business-35724308
Hard to tell
It is possible
Margaret Hodge today suggested that the relocation from Ireland to UK was more to do with the measures pending to end the Double Irish scam.
And she is right
I agree entirely
But then, we did speak
The UK tax avoidance by multinationals got some coverage on Richard Wolff’s weekly US economic update, with a mention of the Crickhowell fair tax town issue that had apparently made it into the New York Times recently.
So it just goes to show that small scale local actions can easily go global when the issue affects everyone!
http://www.rdwolff.com/content/economic-update-good-profits-bad-society
The implication of the tax disclosures in the 2014 financial statements is that most if not all of the share option expense was not expected to be deductible in the year (much of it apparently a permanent disallowance), leaving a taxable profit of some £26m (£5.5m @ 21.49%) to be eliminated by tax losses brought forward. So, my own reading of the tax disclosures is that Facebook did not in fact expect to pay a single penny of corporation tax for 2014, not even the £4327 the Beeb rather ignorantly bangs on about! No doubt HMRC waved all this through, including those impressive prior year tax losses, however those arose. Note 11 to the 2014 financial statements suggests that the company still had over £48m of these tax losses (unrecognised deferred tax asset £9.6m, assumed rate 20%) at the end of the year. My knowledge of tax law is a bit rusty but I do wonder whether Facebook should be allowed to utilise any of those losses which remain unrelieved at the date of the “fundamental changes” which it has announced. It does after all look as if Facebook UK will be ceasing to carry on the principal trading activity as described in its 2014 financial statements, in the course of which the losses must have arisen, and starting a completely new trade of advertisement sales. Can we at least hope that HMRC will dispute whatever cunning plan EY has come up with?
I have raised exactly this point in comments to the media today
The question is will HMRC?
Oh dear, don’t you regret that Eire will get less tax to fund their welfare system as a result of this? Don’t you care about the impacts?
Ireland was not benefiting from this
I have no sympathy with any state – even one I am a citizen of – that acts like a tax haven
‘Go and read the GAAR’
Doesn’t B5 cover current operations & structures & isn’t it up to HMRC to invoke the GAAR?
That is one of the key problems
Facebook says it will pay UK tax on sales to its “largest advertisers”, such as Tesco, Sainsbury’s and others.
However, given that just like Google, they are in the business of selling small ads, I’d expect the majority of their revenue is not coming from those advertisers.
Personally, almost all the ads I see have been placed by small local businesses, not by big names.
They should be paying tax on all of their UK profits, not just the parts which they choose themselves.
Facebook, Google, Amazon and the rest are of no benefit to the UK economy unless they pay all of their taxes in full.
All of the services they provide could be provided by real British businesses paying real taxes, and employing the same workers.
We don’t need them, they need us.
I made these points on the BBC today
I see Facebook UK made a loss in the UK of 28.5m last year. Assuming they are still losing money, and there will be costs relocating the sales booking function to the UK for big advertisers, and they can carry forward previous losses, it is very unlikely indeed there will be CT to pay soon. So for practical purposes Facebook have pulled off a publicity coup and hope to use the good will to expand their brand.
I’m reminded of Joseph Goebbels and his publicity coups for his organisation that was intent on world domination at the time and which didn’t make a profit.
That was not the tax loss
And we do not know the losses can be carried forward
Given the uncertainty over the loss carry-forward entitlement after April 2016, would it be excessively cynical to expect a sufficiently high 2015 taxable profit in Facebook UK to absorb most of the losses before the change in trade occurs? Needless to say, this increase in UK profitability would be at the expense of high-rate taxpaying companies elsewhere in the Facebook group, presumably the US. So, let’s see how much of that unrealised deferred tax asset lives on in the 2015 balance sheet!
You cynic 🙂