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back to article 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 …

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Anonymous Coward

Next you'll be telling us that Google, Amazon and eBay also don't pay the right kind of tax in the UK.

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Why would you expect more?

> 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..

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Pirate

Re: Why would you expect more?

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.

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Anonymous Coward

Re: Why would you expect more?

Hey, Pete 2, I have a bridge you might want to buy shares in. Its ok, its a legitimate business model and you will get a much greater return of investment than if you buy anything else.

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Devil

How effing much?

each member of staff at Facebook's UK division cost the company around £275,000

I think I know a way that FB can go into profit...

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Re: How effing much?

You know there are more to staff costs than salary, right?

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Re: Re: How effing much?

I think that it may be reasonable to assume that salary is the largest component of most IT company staff costs.

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Thumb Up

Re: How effing much?

Yeah; and I know that the rule of thumb is to double their salary to give total costs.

And we're back to HOW MUCH?! again...

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Anonymous Coward

Re: How effing much?

£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.

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Facepalm

Re: How effing much?

I'll Fill in the glaring hole

The cost of 86 uk staff ~ £5 million

The cost of the other 4 ~£20million

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Anonymous Coward

Re: How effing much?

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.

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Anonymous Coward

Re: How effing much?

If each employee is on £55k and it is costing £275k per person (including tax, NI etc) then it seems reasonable for Farcebook to sack all the permanent staff and bring in contractors on £600 per day.

Get great quality and save £43k per employee per year.

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Re: How effing much?

You know there are more to staff costs than salary, right?

Yes, I know. You know I didn't even imply what you think I said?

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Go

Loosing money?

Great way to pay no tax

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Anonymous Coward

Re: Loosing money?

Loose = Not fucking fixed in place

Lose = Cease to fucking keep

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Facepalm

Re: Loosing money?

If you 'Cease to fucking keep' it then it's 'Not fucking fixed in place' ...

/me starts nailing all his cash to the furniture

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Go

Re: Losing money?

Calm down dear, it's only a internets comment

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Headmaster

Re: Losing money?

A badly spelt internet comment, followed closely by a syntactically incorrect one with missing punctuation.

Ergo...

"it's only an Internet's comment."

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Headmaster

Re: Losing money?

"it's only an Internet's comment."

What, the internet can make comments?

Shirley internets is correct, as in a plural, often used in a "humorous" manner.

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FAIL

Let me guess

It may make no money in the whole of the UK, but on the bright side it's Bermuda operations are making money hand over fist.

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Re: Let me guess

Ireland and Dutch, I think you'll find...

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Anonymous Coward

Re: Let me guess

So how come Mr. 33 gets up-votes despite using "it's", and the AC gets a heap of down-votes for saying "loosing"? Two-faced bastards.

Including me, actually. "Loosing" really annoys me. But there's no apostrophe in "his" or "hers". So why put one in "its"?

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Anonymous Coward

Re: Let me guess

Because it's is an abbreviation of it is and its is a possessive pronoun like his or hers.

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Colour me cynical...

Any break down of that £25m?

£20 mil to a few execs and £5 mil to pay the salary and operating costs for the rest?

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Share Based Payments - Basic Accounting - not a Fiddle

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.

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Unhappy

Company accounts

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???

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Re: Company accounts

'REALLY? SO these accounts, filed at company house, should not be used to draw conclusions about the fiscal performance???'

;)

They should be running a train company.

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Re: Company accounts

Yes, really. You'll note the word "global" in the text you quoted, although it was missing from your own remarks.

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Facepalm

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.

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Joke

>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.

So probably only worth paying a couple of hundred million for now, then?

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Of course its tax avoidance

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.

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WTF?

Re: Of course its tax avoidance

> It's a win for the company and for Ireland.

Ireland is winning, now? Last I heard it needed a huge bail-out and it's banks and economy were in the crapper.

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Re: Of course its tax avoidance

Their economy certainly is in the crapper, and it'd be more so if Intel, Facebook, Google, Microsoft et al didn't have major European headquarters in the country.

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Meh

Re: Of course its tax avoidance

> tax loopholes open up creative accounting and tax avoidance via the double Irish system

I'd call that a win for the corporations but I'm struggling to consider it a win for Ireland.

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Re: Of course its tax avoidance

Corporation tax is 12.5% in Ireland vs 26% in the UK, and about 30% + state taxes in the USA.

Companies therefore make all their profits in Ireland and the Irish government takes their 12.5% cut of it.

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They overpayed, should be £0* :-)

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.

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Re: They overpayed, should be £0* :-)

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.

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die!

oh i hope facebook dies soon.

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Re: die!

Patience young envmod. As the next MySpace it's only a matter of time.

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Time for a subsidy?

Since Facebook is on it's uppers and so many people rely on it as a vital part of the local community shouldn't it receive the same sort of subsidy as other local services in rural areas ?

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Joke

Re: Time for a subsidy?

I think the money would be better spent on just sectioning anyone who relies on facebook as a vital part of their community actually.

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it's an amusing irony

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.

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Anonymous Coward

not necessarily full account of global performance

in plain English = "yeah, we probably do participate in tax avoidance scheme, but I'd be fired if I said so".

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'Facebook's European headquarters are in Dublin, Ireland.'

As opposed to Dublin, Slovakia? Please don't go down the American route of assuming the readers know nothing of geography.

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Re: 'Facebook's European headquarters are in Dublin, Ireland.'

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.

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Re: 'Facebook's European headquarters are in Dublin, Ireland.'

Knowing a bit more about geography would mean understanding that there are multiple places called Dublin, including the one in Texas where the "Dublin Dr Pepper" is made. It's not as if the clarification does you any harm!

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Mushroom

Re: 'Facebook's European headquarters are in Dublin, Ireland.'

SWMBO & I recently visited the US & have finally worked out why the put the US flag on everything ,,,,

They are sooooo bad at geography they need to be reminded of where they are all the time :-)

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FAIL

Avoidance != Evasion

Everyone's a tax avoider - otherwise the government wouldn't use them to alter people's behaviour.

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Re: Avoidance != Evasion

Thank you, why some people find this so hard to grasp I don't know.

If government's don't want people to go out of their way to avoid tax, maybe make the tax system simpler and don't suggest an increase in taxation as the answer to every little problem that crops up.

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Re: Avoidance != Evasion

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?’

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