Facebook says it's LOSING money in the UK ... pays hardly any tax Facebook's UK operation plunged to a £13.9m pre-tax loss in 2011, compared with a £1.1m profit a year earlier, accounts filed with Companies House revealed. The dominant social network blamed a "share based payment charge" of more than £15m last year. It said that profit before tax that excluded that payment stood at £1.5m for …
> Facebook's European headquarters are in Dublin
So presumably all its billings are done from there. That would mean that the company had little or no earnings in the UK for it to be taxed on. However we still get a (tax) benefit from FB having an office in the UK, as it would have to pay N.I. employers contributions and its UK employees would pay UK income taxes - as well as VAT on all the stuff they bought with their wages.
This falls into the same category as people complaining that UK banks make "huge" profits - and therefore assuming that because the bank is based in the UK, all the vast profits come from UK customers. The joy of global businesses is that if you can attract them into your country's liberal, tax-friendly environment you can make many, many times more by taxing them on the income they make from foreign trading than a "fare share" policy would get, if they all buggered off to somewhere more sympathetic..
All well and good, except they tend to hoard the profits made off-shore, off-shore until the government of the day is persuaded to have a tax holiday/amnesty to allow the on-shoring of these funds on the pretence that it will encourage internal investment from these newly(?) cash-rich companies.
It actually goes to directors and, depending on ownership structure, shareholders. i.e. If there are few shareholders and they're senior managers then dividends only attract capital gains tax... If the shareholders are plebs like pension funds then the company hoards cash 'for future acquisition opportunities' which allows the directors to have ever-larger salaries whether these 'opportunities' arise or even fail to be profitable if they do.
They hired 3 new office staff for 25k each, that's £75,000, double for employee costs so £150,000
They then hired one executive to manage these there new staff, his wage is £9,925,5000 which means his employee costs fill in the remaining £19,850,000.
The really need to close the wage gap on higher earners vs lower earners. And I'm not just talking tax here. Nifty idea for corperations, pay your exexutives 15% less, pay all the lower rungs 15% more, the company will be saving money still, the people at the low end will have enough money to live off, and the government will have enough people go up a tax rung to make back some of the losses
Or y'know, keep it so prices go up faster than wages so the majority of us spend our days broke as shit. Your call.
£15m was on tax and national insurance payments for shares the company gave its staff which means that the normal cost of each employee is £110,000. Halving this (an employee costs approximately twice as much as their salary) you get an average annual salary of £55,000 which is much more reasonable.
Basic accounting I'm afraid. IFRS 2, Share-based Payment requires compliant companies to measure the fair value of the employee stock options granted to employees and to recognise this amount as an expense in the year in which options are granted.
The valuation of an option, as a "one way bet" is based on the amount of the option and also the volatility of the share price. The infanous "Black Scholes" model is often used for that.
Of course there is no "real expense" but the idea is that companies that do cash compensation should not be disadvantaged.
On the basis that Facebook will have had a generous share option scheme and the share price is volatile, the "Share Based Payments" will have been high value.
Note that if the options are exercised there will be either income tax or capital gains tax paid by the individuals and potentially NI paid by the company - but thats if the shares become more valuabe than the price they were granted at.
The company told the Evening Standard, which was first to report Facebook's latest UK accounts, that the "information does not necessarily present a full account of overall global financial performance so it would be a mistake to draw any conclusions from these filings."
REALLY? SO these accounts, filed at company house, should not be used to draw conclusions about the fiscal performance???
good job they aren't an iT contractor HMRC would camp out in their front room to make sure they "pay the right amount of tax."
Seriously the world has changed its possible for companies to make money abroad and pay staff in the UK without their being an obvious link. Its time for the tax system to change. I would suggest where a country is serviced from abroad a profit is allocated and either tax is charged on that or its used for tax loss purposes.
e.g. total profit £10B UK customers provide £1B of profit, that is what you add to UK profit for tax deductible losses. UK international proft= 1B UK local profit=£200k expenses £350K = £095B total profit no loss can be declared so tough.
Lots of companies situate themselves in Ireland because it's English speaking, has a skilled workforce, but most importantly it has a low corporation tax and US / Ireland tax loopholes open up creative accounting and tax avoidance via the double Irish system.
It's a win for the company and for Ireland.
As per "http://www.europe-v-facebook.org/" I am more interested in the alleged 16 counts of Data Protection Act violations inherent in their service framework. Or the fact that they went on public record stating that they will not honour the lawful 40 day response time for Subject Access Requests if the volume of requests is too high. I don't believe the DPA makes any provision for such excuses?
So in other words, if they cannot operate lawfully within the boundaries of UK/EU Law, they should not exist. Unfortunately we have seen the Irish Data Commissioner only issue "non binding recommendations" - nice to see the usual “one rule for big business, one rule for everyone else” principles of the regulators is alive and well.
So in terms of their accounts and tax, I offer an interpretation that they're not that dishonest after all. Because I would give their European operations a valuation of £0 because if they are non-compliant with the laws in those territories, with any justice could/should be shutdown at any time. And as for their growing user base, well I don't know a single person who doesn't have at least 1 fake FB profile. *yes this is tongue in cheek, to make the point.
The British Information Commissioner isn't any better. They send out the some stern letters telling people not to do it again, and the occasional £5k fine to people who repeatedly ignore those letters. That applies to the small companies as well as the big ones.
That the absurd valuations and wafer thin profits of these dot com firms mean that the accounting charge on share options remuneration when they go public makes profits look even worse than they did before.
Which pushes down share prices as the sheep wake up and cut their losses, which forces the firm to throw ever more stock options at employees whose 'wealth' has just halved.
Which will suppress earnings per share further and continue the cycle.
No wonder they don't have time to build a mobile strategy.
Be fair, the American habit stems from the fact that most of their place names were copied from Europe. As a result, for any large European town or city an American audience probably does know a tiny hamlet somewhere near where they live that has the same name.
It's still an annoying habit that El Reg shouldn't copy, but it wasn't an unreasonable invention in its original context.
And in a similar vein, despite all the evidence to the contrary, maybe even some politicians understand the concept of tax.
From http://www.metro.co.uk/news/914685-david-cameron-gives-ed-miliband-tax-lesson-at-party-conference#ixzz290rGOFvg:
But David Cameron chided: ‘Ed let me explain how it works. When people earn money, it’s their money. Not the government’s money: their money.
‘Then the government takes some of it away in tax. So if we cut taxes, we’re not giving them money – we’re taking less of it away. OK?’
Yes, I am a tax avoider: I have an ISA (tax free savings account, for non-UKers). The difference is between legitimate, government encouraged, tax avoidance and technically legal, but clearly on the edge of the law scams. Look at the whole Jimmy Carr thing: He paid himself minimum wage and then had money given to him by a company in the channel islands (tax haven, again for non UKers). Or look at the IT contractor who pays him or herself minimum wage and takes dividends out of his company.
I had a friend a few years ago, his accountant moved lots of his money into ground almonds (if memory serves) which were in another UK country, this money stayed in whatever the product was over night and was sold the next day. This - and I can't really remember the details properly - avoided him a really rather large amount of tax. He didn't understand why I wasn't impressed that someone on £100k a year should be paying tax at such a low rate as he was, while still profiting from the society he avoided paying for.
"The massive £15m share based payment is understood to be related to income tax and national insurance"
That's fine, then. As long as scribblers will eagerly swallow a potentially-plausible theory, it doesn't really matter that no clear reason is given for a massive payment being paid, to a parent company in a more tax-efficient regime, that just happens to reduce the UK tax liability to an entirely unsuspicious nothing.
...because only the rich can afford accountants.
Like Robin Hood the government has noticed robbing the poor isn't all that rewarding and as robbing the rich is difficult (they buy locks & employ thugs (or tax accountants)) they rely on the "squeezed middle". Which (I suspect) is most of us.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
