Facebook Inc (NASDAQ:FB) Ireland paid taxes of £2.9 million ($4.68m) last year. This is less than one percent of the £840 million ($1.35b) that it made during the same period. Filings for Facebook Ireland, which detail all of the company’s non-U.S profits, revealed this shocking piece of information, adding the social network to a bulging list of multinationals with questionable, yet legal, tax avoidance schemes.
How did Facebook Inc (NASDAQ:FB) avoid that tax? Apparently, accountants at the social network adapted an elusive accounting technique dubbed the ‘Double Irish’. To capitalize on this technique, Facebook’s inherent structure compels all companies based in the U.K, or anywhere outside the U.S, to purchase advertisements through Facebook Ireland. As such, essentially all of Facebook’s non-U.S income is subject to the ‘double Irish’ technique. This tactful technique allows multinationals to move colossal amounts of money to their subsidiaries in form of royalty payments. In Facebook’s case, the social network moved close to £750 million to its California based parent company and the Cayman Islands. This amount was moved in the form of royalty payments and licensing.
As a demonstration of just how much Facebook transferred, its Irish unit posted a £15m annual loss after the transfers. Additionally, Facebook Ireland accounted for 44 percent of the company’s collective £1.95bn ($3.15bn) revenue during that period.
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A Facebook spokeswoman shared insights on the matter, maintaining that Facebook was in line with the law. “Facebook complies with all relevant corporate regulations including those related to filing company reports and taxation,” she noted. On the issue of why the company chose Ireland as its international headquarters, Facebook noted that Ireland was strategically placed, citing that it was the “best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe.”
While Facebook Inc (NASDAQ:FB), and other multinationals seem very casual about the tax issue, the Public Accounts Committee seems to rally a very different spirit. Margaret Hodge, chair of the committee, was not amused and summed up her argument in what she described as “ripping off” tax payers. “This is an insult to British business and individuals who pay their fair share,” she vented. “The inescapable conclusion is that multinationals are using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK,”.
Facebook Inc (NASDAQ:FB) joins a list familiar with Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Starbucks Corporation (NASDAQ:SBUX). The latter two have in the past made front page news after reports documented in November detailed their fight with the U.K Public Accounts Committee over tax issues.