Let’s all defer our tax liability for a year, shall we?

So we have another instance of a large corporation deciding how much tax it’s going to pay. Why does the Government let companies like Facebook, Starbucks, Amazon and Google get away with this?

It’s another example of where being rich and powerful gets you special treatment. The BBC reported:

After heavy criticism that it was avoiding tax, the BBC can reveal that profits from the majority of Facebook’s advertising revenue initiated in Britain will now be taxed in the UK.

It will no longer route sales through Ireland for its largest advertisers.

That includes major businesses such as Tesco, Sainsbury’s, consumer goods firm Unilever and advertising giant WPP.

Smaller business sales where advertising is booked online – with little or no Facebook staff intervention – will still be routed through Ireland, which will remain the company’s international headquarters.

I am told the change will mean that Facebook will account for substantially more revenue in the UK and will therefore pay a higher level of corporation tax on the profits it makes here.

Corporation tax is levied at 20% on the profits a business makes.

The changes will be put in place in April and Facebook’s first, higher, tax bill, will be paid in 2017.

Imagine if you or I rocked up to HMRC and said that we’d start paying the tax that was due next year and that this year, they could just make do with the tiniest proportion of it. I don’t think we’d get very far.

Liberal Democrat Economics spokesperson Susan Kramer said:

Facebook’s decision shows once again that our corporation tax system is fundamentally broken. Whether a company pays its fair share of tax on UK profits cannot be left up to whether they are feeling charitable or not.

“We need a fundamental rethink of this discredited system, yet George Osborne continues to do nothing but boast about sweetheart deals with major companies that are not available to ordinary British businesses and taxpayers.

There has to be some sense of confidence in us all being equal before the law. The Government has a long way to go on that score.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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6 Comments

  • Stephen Way 4th Mar '16 - 9:23pm

    The delay in payment makes sense when you consider that Corporation Tax is always paid 9 Months and 1 day after the end of the relevant accounting year. For our business we use the calendar year so we pay 1st October each year. So this October we will pay 20% of our profits for 2015.

    The problem isn’t the fact that it is paid then, it’s the fact that HMRC are not chasing for back tax. It is ridiculous to say that advertising revenues earns when UK based internet users access Facebook should be taxed in the ROI. If I could pay as little as a percentage as the likes of Starbucks, Amazon and Facebook I would be able to employ more staff…

  • Does the party have a comprehensive policy on corporate taxation?

    The reason Facebook and companies like it get to “decide” how much tax they pay in the UK is because of the super complicated nature of international tax law. Facebook could argue that no tax is due on their UK revenue (because they are providing the service from Ireland which is part of the single market) while HMRC could argue hundreds of millions is due. There are only two ways to settle it: a) a negotiation like this where both sides come to an agreement about what constitutes UK taxable revenue, or b) a very lengthy, expensive and high-risk court battle. There is no guarantee of victory for HMRC in court. They could spend millions fighting the case and still come away with nothing.

    I doubt there really is a solution to this that will satisfy everyone.

  • It would be helpful if before writing this type of article people did some basic research on business accounting. The BBC have put out two relevant programmes this year:

    The Town That Took on the Taxman (BBC2, 20-Jan-16)
    The Bottom Line: Tax Avoidance (Radio 4, 3-Mar-16)

    Currently only the second is available on iPlayer, but that is perhaps the most relevant to Facebook.

    Personally, I’m happy for these companies to pay little corporation tax, if we can get these companies to make substantial direct investments in the UK through the locating of HQ and R&D activities here. Remember tax revenues don’t create jobs in the same way or as efficiently as direct business investments…

  • Peter Watson 7th Mar '16 - 8:06am

    @Roland “Remember tax revenues don’t create jobs in the same way or as efficiently as direct business investments…”
    I think an important part of the problem is that avoiding corporation tax reduces the costs for these very large businesses, giving them an unfair advantage over smaller competitors who cannot exploit the same loopholes in tax law. Consequently the overall effect on jobs and investment could be detrimental, particularly if large companies continue to centralise parts of their operations abroad.

  • @Peter Watson – Any company small or large can avoid corporation tax, it is a voluntary tax. The issue (wrt corporation tax) is about how any surplus earnt by the business is accounted for and used – including ‘investing’ in lower prices etc.

    Yes, if after my normal costs I’m looking at surplus monies, my first thoughts aren’t “oh goodie I can pay corporation tax” they are “what do I need to invest in” – I pay corporation tax because at that moment in time, I have decided it is better for the business to put money into reserves and/or take a dividend than to do anything else with it. Now as a small business I can declare a taxable profit of say £40K and so pay £8K in Corporation tax, alternatively, I can employ someone and reduce my tax bill – hence my point about job creation: for a small loss in corporation tax, I’ve created a job that will create NI and PAYE revenues, something the government are unable to do from my corporation tax receipts alone… I believe previous governments understood this and so implemented schemes that attempted to make it more attractive for businesses to invest in the UK (eg. Facebook building an HQ in London and employing 850 people).

    I personally think the real advantages foreign companies have over small local companies are: being offshore and funding. Firstly by being offshore they naturally will approach the UK market differently to a local business, only formally establishing a taxable presence, of some form, if it is appropriate and beneficial to their business. Secondly, the major’s such as Facebook and Apple have had huge financial backing (and knowledgeable financiers that come with it) from an early stage and hence has had the freedom to structure themselves from start-up in tax efficient ways. I suspect that if more people starting businesses in the UK knew about efficient corporate structures and they were as readily available as off-the-shelf Ltd’s and were priced right, they would be queuing…

    This is an area where I think being in the EU may actually be beneficial, because as we are seeing the EU is putting pressure on members to harmonise discrepencies that are causing tax revenue distortions.

  • Jonathan Monroe 10th Mar '16 - 8:12am

    The other part of the problem is that the public (and therefore politicians) have a very different view on what ‘fair share’ means compared to what the law says, at least in the case of foreign multinationals selling into the UK.

    Under current tax law, a foreign company that sells into the UK from a foreign telesales operation (such as Facebook’s small business ads, which are ads on a US website sold by an Irish telesales operation) has no UK corporation tax liability whatsoever. This made sense when almost all multinationals were manufacturing businesses (you pay corporation tax where the factory is). Similarly, a foreign company who sold a product made overseas through a UK sales office (which is analogous to the situation with Facebook’s large business adverts) was only liable for UK corporation tax on a reasonable wholesale margin less the costs of running the UK office (generally a very small amount).

    So the problem is that we have a situation which neither Facebook nor HMRC consider avoidance (because it is consistent with both the letter and spirit of the law) but produces a result the public consider unfair (because a company with large UK sales pays minimal UK corporation tax). The solution is to change the law to reflect what we think is the fair share of a company selling into the UK from abroad, not to jawbone companies into paying more tax than is legally due.

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