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Facebook Paid 0.3% Taxes On $1.34 Billion Profits
theodp writes "Facebook is unlikely to make many new (non-investor) friends with reports that it paid Irish taxes of about $4.64 million on its entire non-U.S. profits of $1.344 billion for 2011. 'Facebook operates a second subsidiary that is incorporated in Ireland but controlled in the Cayman Islands,' Kenneth Thomas explains. 'This subsidiary owns Facebook Ireland, but the setup allows the two companies to be considered as one for U.S. tax purposes, but separate for Irish tax purposes. The Caymans-operated subsidiary owns the rights to use Facebook's intellectual property outside the U.S., for which Facebook Ireland pays hefty royalties to use. This lets Facebook Ireland transfer the profits from low-tax Ireland to no-tax Cayman Islands.' In 2008, Facebook COO Sheryl Sandberg cited 'local world-class talent' as the motivation behind Facebook's choice of tax-haven Dublin for its international HQ. Similar tax moves by Google, Microsoft, and others who have sought the luck-of-the-Double-Irish present quite a dilemma for tax revenue-seeking governments. Invoking Supreme Court Justice Potter Stewart's famous common sense definition of ethics ('Ethics is knowing the difference between what you have a right to do and what is right to do') is unlikely to sway corporations whose top execs send the message that tax avoidance is the right thing to do and something to be proud of."
...is to pass a law which states that the government will not provide material support or assistance to companies who offshore their profits.
Your container ship full of product headed to Europe gets hijacked by Somali pirates? Well, you can either ask the Liberian government (your ship's flag of convenience) or the Cayman Islands government (your international HQ) to help rescue your ship.
Website breached or attacked? The FBI isn't going to help.
The Chinese pirating your IP out the back door? Sorry, the State Department won't be lobbying China on your behalf.
You want a real government's help? OK, well then you have to pay taxes to the real government. Having a shiny sign on some skyscraper where 1% of your workforce lives, 50% of your profit is generated and nearly none of your income tax is paid means you're really not a local entity and won't get the government on your side.
Making corporations paying taxes on profits is double taxation and should not be done. Rather the profits should pass through to the owners (investors) and then the investors should pay taxes as if that was their earned income. Any retained earnings by the corporation (profits not passed through to investors) should be taxed as if it were earned income. This includes paying SS, Medicare, Medicate, workman's comp, federal, state and local income taxes.
While we're at it lets eliminate all the loopholes, subsidies and deductibles on the personal income taxes as well.
Just WAIT til you find out how IKEA operates! Go on, look it up yourself, you wouldn't believe me if I told you!
Mostly random stuff.
Unfortunately - here in the UK we have the same problem... the people pay more while the corporations pay next-to-nothing
This is a complicated issue in my mind, I'm conflicted. One the one hand, my thought is that as long as we're going to tax corporations, we should do so effectively, limiting/eliminating the tricks that international companies use to avoid taxes like this. Note: To me tax avoidance is using legal means to lower your tax burden. Tax evasion is using illegal means. Using the former is shady, but not illegal, and we should expect companies to be immoral when it comes to saving millions of dollars.
But I also have the thought of 'why bother taxing corporations'? We suck at it, and ultimately companies are owned by individuals, everybody from fat cat industrialists to the retired grandmother who bought $100 of IBM stock 50 years ago. That makes taxing corporations both regressive and ineffective - it's regressive in that it hits those who have low incomes and low amounts of stock(mostly in retirement accounts) as much as it hits the rich. Ineffective in that the big companies have all figured out how to shelter the vast majority of their profits legally. It's the small to mid sized companies that are handicapped by actually having to pay the high US taxes.
Maybe make the corporations collect sales tax instead? What about VAT? Maybe put proper tiers on non-earned income(IE capital gains)?
My idea is to split personal income taxes into two categories - earned and unearned. Earned is salaries, piece work, etc... IE you 'did' something to earn that money. Unearned is capital gains, interest, dividends, and such, money earned from the simple fact that you 'owned' something. Your first ~$10k of income in either category is taxed at 0%, after that it's tiered in parallel like the current system. Assuming an average return rate of 5%, that's $200k in investments before you start having to pay taxes on the return, which is a good amount for emergencies, college, early retirement, and what not.
If you make as much as Romney though, you're going to be paying near the top rate, no matter how you structure your income.
I don't read AC A human right
How about we just close the loopholes? If you have a US based company that is clearly operating a subsidiary, that subsidiary (even foreign) will be subject to US taxation. Far simpler strategy.
You miss the whole point of the story. This story isn't JUST about US tax being avoided.
paid Irish taxes of about $4.64 million on its entire non-U.S. profits of $1.344 billion
The problem here is that Ireland offers ridiculously low tax rates to attract investment and employment.
They realize that the spending and the taxes Ireland gains from income taxes and sales taxes paid by the employees and the jobs that are created helps Ireland more than the corporate tax. So they set crazy low rates cor corporate taxes and Facebook and Google set up data centers there.
I'm hard pressed to declare this a totally bad idea. If it works for Ireland, good for them. If it works for Facebook and Google, how can you blame them for doing exactly what the law was set up to encourage?
The US can fix their tax laws too. They could easily make it more profitable to keep the investment mostly at home. Irish tax and legislation isn't exactly secret sauce. Washington State gives Boeing and Microsoft and Amazon astounding tax breaks just to keep its citizens employed. So do a lot of other states.
Side note: There is a school of thought that says taxing corporations is counter productive, and taxing the compensation AND THE PERKS of people that work for the corporations makes more sense. (Lets not start the corporate owned cars, planes, yachts and houses rant m'Kay? I said "compensation"). When you get right down to it, the reasons corporations are taxed is to gain some measure of government control over them, not to gain any real tax revenue that would not otherwise be collected from shareholders or employees.
Sig Battery depleted. Reverting to safe mode.
Maybe a simple solution is to not tax corporations income at all and to pass the taxable income to the owners of the corporations like a partnership. If you own 10% of the company, then you must claim 10% of the net income on your personal taxes. If you own .0001%, then you claim .0001%. In this modern age of computers, corporations can issue 1099 statements with your weighted average share of income.
Doing so treats corporate income like any other business income for tax purposes and dividends just become a return on capital investment. The downside to all of this is that some very wealthy people won't be able to shelter their money in off shore corporations any more because they will have to claim it as personal income just like a sole proprietor or partner.
Well, when a fire erupts at the Facebook HQ, simply don't send the firemen when Facebook calls and tell them to contract a private firefighting company. They will have the fire put down by that company and will simply pay an invoice for the services rendered. :-)
Actually, this is exactly what used to happen before (roughly, and depending on where you live) the early to mid 19th century. The earliest firefighters in modern times were either volunteers or employed on a private contractual basis (ie they would literally turn up at the scene of a fire and try to negotiate payment before putting it out). As insurance developed in the 17th century, naturally insurers started to provide their own firefighters to reduce the losses sustained to fire. The insurers in London, for example, set up a system after the Great Fire of 1666 whereby each had their own group of firemen and they placed "fire insurance marks" on each house so that they could identify whether their unit was supposed to fight a particular fire or not. Eventually the usual pressures of commerce meant that these units usually merged into a single unit covering the whole of London across multiple insurers in the early to mid 19th century, however, still under a model of privately funded provision.
What happened next could be viewed as an example of "corporate welfare"... the insurers lost large sums in a few particularly bad fires and they decided as a result of this that they would lobby the government to provide a beefed-up firefighting service at taxpayers' expense. At the same time, there was a growing movement to "profesionalise" the remaining voluntary provision in other parts of the world which led to them becoming paid rather than voluntary. Following the model set in the insurer-led markets, these areas paid their firefighters out of the public purse.
I would suggest that it seems the right thing to do to fund fire defence by extracting the costs directly from insurers on an incident basis rather than simply relying on general taxation - i.e. if my house catches fire, my insurer would then have to pay the government back the cost involved in calling the fire brigade out (you can argue about the corner case of how to deal with people who are uninsured and whether you fund their costs from general taxation, a levy on those who are insured, or by trying to pursue them individually). One benefit is that the insurers then have even more incentive (beyond just the threat of loss) to ensure that fire prevention measures are adequate. You could also compare this to the idea that the court system should be self-funding through filing fees etc. Just because it's a legitimate use of a government monopoly, doesn't mean it has to be funded through general taxation.