Facebook UK Tax Arrangements Called Into Question

Facebook has been accused of shirking its responsibilities in the UK after figures suggested that it pays tax on just 11 percent of its estimated sales in the UK.

It is believed that the social network made £175 million in the UK in 2011, but reported revenues of just £20.4 million.

It reportedly paid just £195,890 to the UK treasury in 2011, less than the £275,000-a-head staffing costs of its 90 UK employees.

Facebook UK Tax Controversy

The social network apparently used the same tax avoidance mechanism as Google, which paid 36 million tax on revenue of £395 million. Both companies operate their UK office as a subsidiary of an office in Dublin, to take advantage of lower tax rates there. Under this scheme, the companies both pay UK tax only on a “commission”, while the lion’s share of the revenue goes through Ireland. Both Facebook and Google have their official European headquarters in Ireland.

Facebook’s revenues are due to increase to £236 million this year according to analysts, who base their estimates on how many advertisements are placed on its network, the number of users it has and how long they spend on the sites, as well as surveying advertising agencies and large advertisers.

According to Facebook, the company did not choose Dublin because of its low tax rates, but because it was the best location to base its European operations and hire the right staff for a hi-tech operation.

Alongside Google and Facebook, HM Revenue and Customs (HMRC) is reported to be investigating Amazon following the discovery that it pays no corporation tax in the UK.

The UK’s largest online retailer does not pay any tax on the £3.3 billion worth of sales it generated in the country last year as it has been based in Luxembourg since 2006.

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Steve McCaskill

Steve McCaskill is editor of TechWeekEurope and ChannelBiz. He joined as a reporter in 2011 and covers all areas of IT, with a particular interest in telecommunications, mobile and networking, along with sports technology.

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