Tax Request Rejected: Facebook’s tax payments in 2018 are suspected to be too low

October 23, 2019

2 min read

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What's going on here?

In 2018 Facebook only paid £28.5m in corporation tax despite huge sales amounting to £1.6bn.

What does this mean?

Facebook, which has a net worth of £420bn, has recently come under fire for only paying £28.5m in corporation taxes despite earning £1.6bn in 2018. Records from Companies House show that only half of Facebook’s sales are recognised as actual revenue due to various expenses being deducted; as a result, Facebook’s taxable profit amounts to £96.6m. Yet these results have been baffling to tax experts with many believing Facebook is deliberately shifting its profits to pay fewer taxes. MPs have called Facebook’s alleged profits “paltry” and request action is taken to ensure Facebook is held accountable and pays its fair share of taxes.

What's the big picture effect?

Facebook argues that the amount it contributes to the economy compensates for its lack of corporation tax. Indeed, Facebook employed 2,000 British workers in 2018 and is expected to increase this total to 3,000 by the end of 2019. It is thought that most of these employees will be in highly trained, well-paid positions within the company. Therefore, it could be argued that Facebook generates jobs for UK residents which in turn boosts the economy. This arguably could be considered a more positive contribution to society than paying high corporation taxes. Moreover, lower taxes could allow Facebook the financial freedom it needs to employ such a large number of employees. Facebook also benefits the economy through aiding British businesses by giving them a platform to advertise their products, thus gaining a large consumer base. However, Facebook’s low taxes makes the business seem like it is avoiding its responsibilities, with tax experts claiming that while its accounts were legally compliant, they were “opaque”.

Accounting professor Prem Sikka claimed transactions in the accounts showed Facebook was shifting money between different companies to reduce their profit margins. This comes after several scandals that have tainted Facebook’s reputation in recent years; the firm has been criticised for allowing foreign agents to use it as a platform to influence the 2016 Presidential election and the outcome of the referendum vote. It was also accused of leaving around 50 million users’ details at risk. Facebook may want to reconsider its contribution to corporate tax given the recent negative attention it has received and the potential outcry it could trigger from the public, especially considering how much it relies on public usage.

Report written by Hanna Tesfazghi

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