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Facebook UK Paid £35m In Staff Bonuses, But Only £4,327 In Corporation Tax (gu.com)
New submitter Phil Ronan writes: After getting away with paying £0 corporate tax in 2013, Facebook UK has announced that its corporate tax payment for 2014 (total revenue: £105 million) is going to be £4,327. This is a tiny fraction of the £35 million pounds given away by the company in staff bonuses over the same period. "The share scheme was worth an average of more than £96,000 for each member of staff. Once salaries were taken into account, a British employee of Facebook received more than £210,000 on average. ... A spokesperson for Facebook said: 'We are compliant with UK tax law, and in fact in all countries where we have operations and offices. We continue to grow our business activities in the UK.' She added that all the firm’s employees paid UK income tax on their payouts."
They were going to pay £100 million, but the accountant entered it as 10e7...
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Is the British corporate rate that different from the personal rate? Did the British government not collect the taxes either way, or did I miss something?
(North American here, not an expert on British tax rates)
Pretending this is my office full of bitter coworkers..
If not, what's the complaint? I'm sure the UK government got a nice slice of the pie in the form of income taxes on all those highly paid employees.
This is actually the way I'd like to see all businesses work. Distribute profits among all employees and tax it as individual income. In a time of stagnant wages and rising inequality what about this practice is bad?
Seems to be a bit of selective clipping in the description, the key part that is missing is that the company was operating at a £28.5m loss and still ended up paying some amount of corporate tax. Not sure what the problem is? Is the company supposed to have done something wrong by paying out a large bonus that will be taxed individually anyways? While there are some interesting tidbits in the article about things like profit deferral, none of that seems relevant to the case at hand, so I'm somewhat at a loss as to what the news is supposed to be.
Then the salaries of the employees are taxed - taken from the already taxed profits the corporation made.
Um. No.
Profit is what's left when every expense has been subtracted. If you don't have anything left after paying your employees, you made no profit and don't have to pay tax for it.
Unless it's really different in the UK; which I doubt.
UK corporate tax rate (on earnings, not income): 20%
(Note: US top Federal corporate tax rate is 35%, along with state corporate tax rates as high as 12%).
UK personal tax rate is 20% up to 42,385 pounds, 40% above that, and 45% above 150,000 pounds.
So frankly, the UK is receiving more tax money on income paid out as salaries above 43K pounds than if it simply retained earnings.
Is the British corporate rate that different from the personal rate? Did the British government not collect the taxes either way, or did I miss something?
The main complaint is that multinationals offshore their profits by e.g. licensing key bits of IP from a subsidiary in a tax haven. 'We would have made a profit, but we paid $100 million to use the Facebook logo to Facebook Holdings (Cayman Islands). ' (not an actual quote).
So the answer is, the US government may collect some of it down the line but not the British government.
The point is that the UK government gets its taxes either way, whether Facebook keeps the profits and pays corporate tax, or gives out the profits as bonuses to employees and those employees pay income tax.
And as soon as you make more than you want to pull out as personal salary then it is the way most people do it. As far as I remember the rule of thumb is that if you make more than £100.000 a year it is worth doing.
Unless the inland revenue decide it's just disguised employment. Many people do operate companies to do this, and it can be worthwhile at less than 100k, but you have to make sure that you work for more than one employer (I think within an 18-month period).
Absolutely! Governments don't ever do anything for me, whereas corporations bend over backwards to keep me happy, I'd much rather they got my dollars.
P.S. Nice to see Ron Swanson is on Slashdot.
FB employs very few people in the UK, what it does is known as transfer pricing.
It creates an asset that is held by an off shore low tax country, it then licenses that asset from the UK company to remove the tax liability in the UK.
The assets are typically synthetic, designed exactly for transfer pricing, so FB UK will be paying for the right to the trademark Facebook, and licenses for patents, and so on.
The EU and US came up with this plan back in the 90's, they were going to be the IP economies, licensing stuff and making money that way, and China would be the manufacturing.
What happened is that IP rights are trivial to transfer to an offshore holding company, and so they can skirt taxes using that. So EU and US ended up with Federal and National debts ( as no taxes are coming in), minimal jobs, and don't even hold the IP rights. Meanwhile you need to license these patents in EU and US, so the cost of manufacturing in the EU and US remains insanely high.
In China for example, the only patents that are licensed are for the end goods shipped to the US and EU, giving them a competitive advantage, courtesy of disloyal or incompetent treaty negotiators in the developed countries. /fuck tpp
In the UK a corporation takes in revenue - from that revenue, it deducts all necessary outgoings such as operating expenses, wages, investment, acquisitions (asset or otherwise) etc etc. What is left is the profit. Corporation Tax is based on that profit.
According to the full accounts, Facebook made a loss of £28.4Million in the previous financial year off of a turn over of £104Million (the accounts list "administrative expenses" of £131.5Million on that turn over).
The bulk of that administrative expense was staff related costs - a wage bill of £40.8Million, and a deferred share based payments charge of £35.5Million, which along with employers contributions totals £86.3Million.
The figure of £4,327 is based on the loss, as a nominal figure.
The figure of £35Million is based on share options and grants maturing for staff - they aren't straight bonuses, they have been on the books for a long time.
The point is not that the tax wasn't paid on the money handed to employees, it's that it clearly wasn't paid on something else.
You don't hand out £35m in bonuses to employees if you only made £15000 profit (what you would approximately need to in order to pay ~£4000 tax). Clearly the company is doing well, and making a large profit, or the management wouldn't feel the need to give everyone bonuses, so why then is the tax bill not higher?
Anyway, the first rule of economics "Companies don't pay taxes. People pay taxes."
Does anyone know how much they spent as a business expense? That's what accountants are for. Reduce taxes over the year. "Where going to have this much profit this quarter. Rather than pay the tax, find out what equipment we need and spend it there." Not a damn thing wrong with that and every business and every home owner does the same.
If Facebook (or any other company) paid their LEGAL tax oblation, what's the beef? If they are not cheating and breaking the rules, WHO CARES?
If a resident of the UK somehow get's the idea that Facebook *should* be paying more, then it's up to you to CHANGE THE LAW to make it fair. You guys have elections, you elect the people who write the laws, go make your case with them and insist they change the law..
I get so tired of this, "all big corporations are evil" narrative, especially for companies which are FOLLOWING THE LAW. IMHO MOST companies follow the law, both because it's good for business and because folks don't like going to jail. So can we please stop with this narrative? It's not valid.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
You do pay out that £35Million if its been on the books as future liabilities and it matures in the current financial year, so long as your cash flow allows you to.
The problem here is the confusion that deferred bonuses and share options creates in situations such as these - the options and bonuses were earned in previous years, and matured in these accounts financial years, so it generates an "odd" impression of the current years accounts.
What's going on is that Facebook (and other companies like Google) claim that their revenue occurs in other countries (such as Ireland). Facebook, Google, etc, employ many people with "Sales" titles in the UK. These UK-based employees sell to UK companies, yet these Facebook, Google, etc. claim that the sales were not made in the UK and so the revenue that is a result of the activitites of these UK-based sales people is not included in the profit and loss calculations for Facebook's UK tax accounting.
The real "Libtards" are the Libertarians!
No, you are ignorant.
This isn't a matter of paying bonuses vs. paying corporation tax. This is a matter of accurately reporting revenue in the country where it was really earned. What is happening is that Facebook is reporting that sales made by UK-based sales people to UK-based customers (to send advertisements to UK-based computers) is earned in Ireland.
If the revenue were properly reported and the taxes paid, the bonuses would still be paid, so the income tax to the UK government would be the same.
The real "Libtards" are the Libertarians!
Sort of, yes.
The thing is, Facebook and other massive transnationals (Google, Apple, etc) stow their IP in a country with very low corporate tax rates (Ireland and Cayman Isl. are common), then that parent company charges huge "management fees" or other fees to use the IP in the target country (UK in this scenario). So if they projected to make an annual profit of £100m in the UK, the Irish entity would charge £100m in fees. Facebook UK now makes no profit, but Facebook Ireland makes an additional £100m. Any additional profits can be handed out as bonuses (if they're going to lose a significant portion of the money anyway, they'd rather give it to employees than the government).
This is all completely legal, and has been the bane of politicians around the world for decades. If there were an easy fix, it would have been done by now.
Of course, that's just the ELI5 version, it all gets much more complicated when used in the real world. See here for more.
That would be a fair comment if they'd paid much tax over the past 4 years (the typical life span of share vesting schemes in the tech industry), but Facebook paid £0 corporation tax in the UK in 2012, 2013 and 2014.
Says someone posting on the Internet.
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https://www.gov.uk/government/...
I am from the Internet you ignorant fuckwit.
Facts are history now plebs have politics for religion on social media.
As well as the fact that they aren't giving all their profits away as bonuses, there's also the fact that expecting employees to pay the tax rather than the company paying it is a very different thing indeed. Even *if* the government would get the same either way. Which they wouldn't as rates and allowances vary.
I understand that part, what I don't get is what's the long game? They build a huge amount of capital in Ireland, Bermuda, the Caymans, etc. but then what? If they want to actually use that money for something in a country like the US they're going to have to pay taxes on it, no? Seems to me it's really a tax deferral strategy and not avoidance?
They do report the UK revenue accurately: it's 105 million pounds. But they get taxed on profits, not revenues. Profits is what is left after expenses are accounted for, salaries and bonuses are paid, and money is paid back to the parent corporation, which after all, created the ideas that allowed Facebook UK to make any revenue at all.
And Facebook has been around for longer than 2012, 2013, 2014 and 2015, so its had time to accrue year on year liabilities like this. Facebook hasn't just taken one single liability, its actually done the intelligent thing and spread the liabilities out across the years so it doesnt get hit with one £300Million bill.
The point is that the UK government gets its taxes either way
No, the point is that they gave their staff massive bonuses and then funnelled the rest of the profit out of the country so that they could avoid paying corporation tax on it. The government lost out on tax due on that profit because they used a loophole to avoid it.
It's legal but morally dubious and there are international efforts to stop it happening.
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I understand that part, what I don't get is what's the long game? They build a huge amount of capital in Ireland, Bermuda, the Caymans, etc. but then what? If they want to actually use that money for something in a country like the US they're going to have to pay taxes on it, no? Seems to me it's really a tax deferral strategy and not avoidance?
What would you use it for in the U.S.?
Build factories? What kind of idiot builds factories in the U.S.?
(1) Labor laws are more strict
(2) There are more unfunded mandates on U.S. labor, since there's no single payer medical, etc.
(3) Environmental laws are more strict
(4) Raw materials, such as Lithium for batteries, would have to be imported
(5) Component materials, such as chips, would have to be imported
It makes no sense; about the only thing of value to use that money for in the U.S. would probably be real estate in SF or NY, etc..
No, but the company simply adjusts salaries and compensations according to how much they have to pay.
It doesn't matter whether it's "the same money"; one pound is one pound to the UK government, regardless of who wrote the check.
(Sorry this simple fact is so baffling and disturbing to you that you need to resort to insults.)