Irish government collected £4.4m last year from world's largest social media company that earned estimated £645m in UK
Facebook is facing a fresh controversy over its tax contributions after company filings revealed the social network exported an estimated £645m earned in the UK and other overseas markets to the Cayman Islands tax haven last year.
Facebook uses a subsidiary in Ireland to collect advertising revenue from around the world. Accounts filed in Dublin this week show that business is booming, with international earnings rising to £1.5bn in 2012, up from £840m in 2011. But the Irish government collected just £4.4m in tax from the world's largest social media company last year.
Using a complex web of subsidiaries in a tax structure known as the "double Irish", employed by a number of American multinationals, Facebook shelters much of the money it earns outside its home market from governments around the world.
Facebook and Google account for around half of the £6bn expected to have been spent on advertising on the internet in Britain this year, according to eMarketer. But Facebook has put most of this income out of reach of the taxman.
The company paid no tax in Britain last year, despite earning an estimated £223m in one of the Europe's biggest advertising markets. Facebook takes full advantage of London's status as a hub for European advertisers. Its European vice president, Nicola Mendelsohn, formerly chair of the well-respected Karmarama ad agency, is based in the capital, near to the headquarters of WPP, the world's largest buyer of advertising space.
A Facebook spokesman said: "Facebook complies with all relevant corporate regulations including those related to filing company reports and taxation. We have our international headquarters in Ireland that employs almost 400 people and a series of smaller local offices providing support services all over Europe. Dublin was selected as the best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe."
Facebook's UK operating company employs more than 120 staff, many in advertising sales, but advertisers are actually billed via the Dublin-based subsidiary, Facebook Ireland Ltd. Accounts show the business employed 382 staff last year, some of them in Ireland and some abroad.
The subsidiary collected revenues of £1.5bn last year, but this was wiped out by two items – the cost of sales and payments made to other group companies. Large sums go directly to the US, with £670m being paid to the listed parent company last year. But £645m was paid to Facebook Ireland Holdings for use of the platform.
This second subsidiary is based in Ireland but does not file full public accounts. This means the final destination of any payments out of Facebook Ireland Holdings is untraceable. However, there are clues to its ownership – filings show Facebook Ireland Holdings is owned by a number of Facebook subsidiaries based in the Caymans, a jurisdiction that does not levy corporation tax.
The ownership structure suggests Facebook may be diverting much of its international income to the tax haven. The company declined to comment on this aspect of its accounts.Margaret Hodge, who chairs Parliament's influential Public Accounts Committee, has criticised Facebook's tax record, accusing the company of apparently "deliberate manipulation of accounts of economic activity to deprive the British taxpayer of a rightful tax contribution".
Political leaders around Europe have urged Dublin to do more to tackle tax avoidance scheme. The G20 group of countries and the OECD are working to close loopholes, while prosecutors in Italy have initiated proceedings against Apple for similar arrangements to those being used by Facebook.
[Image via Agence France-Presse]