The Guardian view on Facebook’s tax bill: too little to like
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Version 0 of 1. Populist responses to the financial crises of the early 21st century have taken strikingly different turns in different countries. In Greece, populism currently veers to the left. In France, it is pushing to the right. In the US primaries, both left and right are landing punches at the same time. Over the last decade, however, some version of the mood has made itself a factor to be reckoned with in almost all liberal democracies, including Britain. If there is one common response that runs through all the examples it is perhaps this: this economic system may be working for someone, but it isn’t working for me. Many things have helped to trigger this mood that things are unfair and out of control: among them the bailout of the banks, continued boardroom excess, the squeeze on public services and fresh waves of immigration. All of these speak to the struggle of modern democracies to deliver the fairness that has always been part of the implicit electoral contract of the modern era. Yet if any aspect of the workings of modern states exemplifies the anxiety that someone else is getting a free ride at the ordinary citizen’s expense, it is the tax system. Modern welfare states explicitly impose taxes in order to redistribute from the rich to the poor. Yet in some circumstances, the poor can pay more tax than the rich. In 2014, the average worker earning £26,500 would have paid just short of £5,400 in personal tax. In the same period, however, the social media giant Facebook paid just £4,327 in corporation tax to the exchequer, despite having a global market value in excess of $300bn, despite paying its UK staff an average of £210,000 a year and despite, by some estimates, generating up to a tenth of its income in this country and making £1bn profit in the UK every three months. Facebook was not alone in arranging its tax affairs in this spectacularly improbable way. But the resentment of ordinary UK taxpayers towards such conduct corrodes trust. Governments are supposed to deliver a reasonably fair deal. But governments of all stripes will struggle to regain credibility while such unfairness remains unaddressed. On Friday, Facebook changed its tune. The company announced that, from April, it will route its major face-to-face advertising deals through the UK tax system, instead of through Ireland, where the company is based for tax purposes. This is likely to have a significant effect on Facebook’s UK tax bill, since corporation tax of 20% on the profits from those deals can be expected to raise millions of pounds. Online advertising – which may be around half of the business – remains unaffected, however, even when it is paid for by British taxpayers and companies, and will still be treated as Ireland-based. Since nothing else about the company’s business has changed, this suggests that the UK tax collectors HMRC have failed to secure a fair return for the taxpayer from Facebook and similar multinationals in the past – as the 2014 returns imply – as well as failing to nail the online side of the business. Why can the new arrangements not apply to 2015-16? Facebook’s financial affairs still lack transparency. But it seems likely that the online giant has made its move for two main reasons. The first is the damage that the tax avoidance arrangements of US tech multinationals have done to their global brands, which have always prospered for being thought cool but which are now increasingly thought to be just greedy. The second is the possibility that the UK’s tax strategy, and in particular the threat, announced by chancellor George Osborne, of a future 25% rate on so-called diverted profits, has put the squeeze on Facebook. Friday’s announcement shows the company has rightly concluded that there is still plenty of money to be made in the UK in spite of the tougher tax enforcement approach. An equally important question is whether HMRC deserves credit for these changes. This week, HMRC published a policy paper which implied that the taxation of non-resident companies was in firm hands. But the Facebook announcement suggests that earlier claims of this sort were complacent. It remains the case that big companies are able to negotiate their tax liabilities, as Google did this year, while ordinary taxpayers are compelled to pay what they owe according to clear rules. HMRC may have helped secure a better deal for the public, but this is still not a fair deal. The public is unlikely to regain the confidence that the tax system works fairly until that changes. Until then, liberal democracies will struggle to deliver the side of the bargain that citizens rightly desire. |