Facebook say that their low profits in the UK are down to the workings of the international tax system which require them to pay their taxes in their home country. But an analysis of Facebook’s accounts demonstrates that doesn’t appear to be happening, with the evidence strongly suggesting that most of Facebook’s profits are being shifted into tax havens. This resulted in Facebook paying an average tax rate of just 12% in 2018, when the US Federal rate is 21%.
TaxWatch is now calling on the company to come clean on its tax affairs and tell the world where it is putting its profits.
In 2018 Facebook’s worldwide profit margin was 44.6%. On every $1 they sold in advertising, they made 45 cents in pre-tax profit.
In the UK, according to their published accounts, Facebook is much less profitable, making only 8.5% pre-tax profit.
On Tuesday 19 November, in an interview on the BBC, Amol Rajan, the BBC’s media editor put it to Facebook’s Director of UK and Ireland, Steve Hatch, that the low levels of profit seen in the UK were artificially deflated to avoid a tax liability in the UK.
Mr Hatch responded that the current tax rules meant that most of Facebook’s profits were taxed where things were created and made. In Facebook’s case this would be in the United States.
An analysis of Facebook’s accounts by TaxWatch demonstrates that this does not appear to be true. Facebook themselves state in their financial accounts that the majority of their profit is made outside of the USA, where it is taxed at an average rate of just 6%. This evidence strongly suggests that the company is moving profits made in the UK and other places where it makes sales into tax havens.
TaxWatch has written to Facebook’s Vice President of Tax calling on him to set the record straight on Facebook’s tax affairs, and to tell us in which tax jurisdiction Facebook declares most of its profit.
The full text of the letter to Facebook’s Ted Price can be seen here: Facebook-Letter_GT_20191121