Call for regulation reform following Facebook tax row

The online networking company Facebook generated many millions of pounds in revenue in the UK last year but paid no corporation tax. The revelation is likely to reignite protests about companies dodging UK tax by processing sales through offshore lower-tax regimes. 

California-based Facebook, which has the world’s biggest social media site, boasts more than a billion users, including 24 million daily users in Britain. Its US stock market valuation has now reached $123bn (£79bn, €108bn).

Its Companies House accounts show a £2.4m UK loss ($3.7m,€3.3m) on a £34.6m turnover last year.

However, eMarketer, a New York-based independent analysis consultancy, estimated Facebook’s UK income at £223m from advertising, mostly booked through the Irish Republic.

Such tax avoidance, legal under UK law, rankles with many business observers, tax specialists and MPs. It has enabled Facebook to pay only £1m in corporation tax on estimated £500m UK sales since 2007.

Facebook replies to critics that it pays all taxes demanded by the UK and complies with the tax laws in every country where it operates. It says: “We take our tax obligations seriously and work closely with national tax authorities around the world to ensure compliance with local law.”

Margaret Hodge, who has been the scourge of tax-avoiding companies in recent years as chairman of the UK Commons Public Accounts Committee, said: “This is yet another example of what appears to be deliberate manipulation of accounts of economic activity to deprive the British taxpayer of a rightful tax contribution, according to the profits they make in the UK. “I am getting fed up with this constant stream of stories and little sign of a challenge from HM Revenue & Customs and a strange silence from the government.”

Crawford Spence, professor of accounting at Warwick University, who is researching tax avoidance, said: “The question really arises as to whether Facebook has a moral responsibility to pay tax beyond what the law requires them to.

“Speaking to the moral character of corporations has rarely resulted in behaviour change, so if the UK wants companies that make profits to also pay tax, then it will have to alter the regulations that surround them.”