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Facebook Paid 0.3% Taxes On $1.34 Billion Profits 592

Posted by Soulskill
from the all-about-the-benjamins dept.
theodp writes "Facebook is unlikely to make many new (non-investor) friends with reports that it paid Irish taxes of about $4.64 million on its entire non-U.S. profits of $1.344 billion for 2011. 'Facebook operates a second subsidiary that is incorporated in Ireland but controlled in the Cayman Islands,' Kenneth Thomas explains. 'This subsidiary owns Facebook Ireland, but the setup allows the two companies to be considered as one for U.S. tax purposes, but separate for Irish tax purposes. The Caymans-operated subsidiary owns the rights to use Facebook's intellectual property outside the U.S., for which Facebook Ireland pays hefty royalties to use. This lets Facebook Ireland transfer the profits from low-tax Ireland to no-tax Cayman Islands.' In 2008, Facebook COO Sheryl Sandberg cited 'local world-class talent' as the motivation behind Facebook's choice of tax-haven Dublin for its international HQ. Similar tax moves by Google, Microsoft, and others who have sought the luck-of-the-Double-Irish present quite a dilemma for tax revenue-seeking governments. Invoking Supreme Court Justice Potter Stewart's famous common sense definition of ethics ('Ethics is knowing the difference between what you have a right to do and what is right to do') is unlikely to sway corporations whose top execs send the message that tax avoidance is the right thing to do and something to be proud of."
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Facebook Paid 0.3% Taxes On $1.34 Billion Profits

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  • by swb (14022) on Friday December 28, 2012 @06:24PM (#42414461)

    ...is to pass a law which states that the government will not provide material support or assistance to companies who offshore their profits.

    Your container ship full of product headed to Europe gets hijacked by Somali pirates? Well, you can either ask the Liberian government (your ship's flag of convenience) or the Cayman Islands government (your international HQ) to help rescue your ship.

    Website breached or attacked? The FBI isn't going to help.

    The Chinese pirating your IP out the back door? Sorry, the State Department won't be lobbying China on your behalf.

    You want a real government's help? OK, well then you have to pay taxes to the real government. Having a shiny sign on some skyscraper where 1% of your workforce lives, 50% of your profit is generated and nearly none of your income tax is paid means you're really not a local entity and won't get the government on your side.

  • by pubwvj (1045960) on Friday December 28, 2012 @06:35PM (#42414563)

    Making corporations paying taxes on profits is double taxation and should not be done. Rather the profits should pass through to the owners (investors) and then the investors should pay taxes as if that was their earned income. Any retained earnings by the corporation (profits not passed through to investors) should be taxed as if it were earned income. This includes paying SS, Medicare, Medicate, workman's comp, federal, state and local income taxes.

    While we're at it lets eliminate all the loopholes, subsidies and deductibles on the personal income taxes as well.

  • Simple Fix (Score:3, Interesting)

    by maz2331 (1104901) on Friday December 28, 2012 @06:35PM (#42414567)

    Wouldn't a simple fix for the countries involved just be to impose a tarrif on the importation of the "IP Rights"? Just set it to be equal to taxes on profits, and the problem is solved. So, FB UK doesn't make a paper profit of, say, 3 billion because their revenues of 3.2 billion are offset by "IP Licensing Costs" of 3 billion - just tax the importation of the right and collect the same amount as you would if they didn't try the shifting.

     

  • Re:Tax avoidance (Score:2, Interesting)

    by Anonymous Coward on Friday December 28, 2012 @06:38PM (#42414599)

    You are raising an argument that does not exist. I wrote very clearly we can argue about a bloated government, but not about taxes. You are saying that I somehow want people to pay high taxes for other people. I did not make this point and thus please stick to the argument.

    Facebook paying no taxes is the kind of crap you get when you get a large powerful government that makes it worthwhile for entities with a lot of money to bribe, err, lobby that government to make rules favorable to them.

    Don't like it?

    Quit voting for candidates who want more and bigger government.

    THAT'S the root cause of the problem.

  • by 50000BTU_barbecue (588132) on Friday December 28, 2012 @06:44PM (#42414651) Homepage Journal
    Just WAIT til you find out how IKEA operates! Go on, look it up yourself, you wouldn't believe me if I told you!
  • by sethstorm (512897) on Friday December 28, 2012 @06:46PM (#42414661) Homepage

    Start using the NSA for some good and uncover the people involved.

    In addition, start taking advantage of the nature of these tax domiciles as being easily knocked over by a superpower's military. Offer to disclose each conquered country's information to other regions such as the UK and EU. In any case, move in a way that thwarts any effort to move out assets to "somewhere else".

    Finally, be willing to use extraordinary rendition to moot jurisdiction movement. This would be viable for cases such as Eduardo Saverin, and assets of companies sent offshore.

    In any of the cases, there will be no shortage of people willing to defend their country from tax jurisdiction abuse. With plenty of people out of work - more than a few leaving from good jobs - opportunity exists to discourage/deny the use of creative accounting.

    (If you really want to turn up the heat, ensure that nobody involved, whether directly or indirectly, will have any protection from the US)

  • Re:Tax avoidance (Score:3, Interesting)

    by Anonymous Coward on Friday December 28, 2012 @07:03PM (#42414831)

    Actually there is. During Clinton's presidency they enacted Welfare Reform that required getting work to continue receiving welfare, no work meant no more welfare. We dropped welfare roles by record amounts and as far as I know there wasn't a spike in crime.

    Or were you looking for an example like the guy who brougt it up where cutting welfare was bad? I don't know of any examples like that except maybe for current day Greece.

  • Re:Tax avoidance (Score:4, Interesting)

    by Dishevel (1105119) on Friday December 28, 2012 @07:05PM (#42414841)

    The less that a government can do the less that the power that the corporations have over the government matters to the rest of us.

  • by DRMShill (1157993) on Friday December 28, 2012 @07:08PM (#42414875)

    The difference is the poster probably doesn't have powerful lobbying groups to make it that way.

  • Re:Tax avoidance (Score:5, Interesting)

    by Firethorn (177587) on Friday December 28, 2012 @07:09PM (#42414883) Homepage Journal

    Unfortunately - here in the UK we have the same problem... the people pay more while the corporations pay next-to-nothing

    This is a complicated issue in my mind, I'm conflicted. One the one hand, my thought is that as long as we're going to tax corporations, we should do so effectively, limiting/eliminating the tricks that international companies use to avoid taxes like this. Note: To me tax avoidance is using legal means to lower your tax burden. Tax evasion is using illegal means. Using the former is shady, but not illegal, and we should expect companies to be immoral when it comes to saving millions of dollars.

    But I also have the thought of 'why bother taxing corporations'? We suck at it, and ultimately companies are owned by individuals, everybody from fat cat industrialists to the retired grandmother who bought $100 of IBM stock 50 years ago. That makes taxing corporations both regressive and ineffective - it's regressive in that it hits those who have low incomes and low amounts of stock(mostly in retirement accounts) as much as it hits the rich. Ineffective in that the big companies have all figured out how to shelter the vast majority of their profits legally. It's the small to mid sized companies that are handicapped by actually having to pay the high US taxes.

    Maybe make the corporations collect sales tax instead? What about VAT? Maybe put proper tiers on non-earned income(IE capital gains)?

    My idea is to split personal income taxes into two categories - earned and unearned. Earned is salaries, piece work, etc... IE you 'did' something to earn that money. Unearned is capital gains, interest, dividends, and such, money earned from the simple fact that you 'owned' something. Your first ~$10k of income in either category is taxed at 0%, after that it's tiered in parallel like the current system. Assuming an average return rate of 5%, that's $200k in investments before you start having to pay taxes on the return, which is a good amount for emergencies, college, early retirement, and what not.

    If you make as much as Romney though, you're going to be paying near the top rate, no matter how you structure your income.

  • by icebike (68054) on Friday December 28, 2012 @07:09PM (#42414885)

    How about we just close the loopholes? If you have a US based company that is clearly operating a subsidiary, that subsidiary (even foreign) will be subject to US taxation. Far simpler strategy.

    You miss the whole point of the story. This story isn't JUST about US tax being avoided.

    paid Irish taxes of about $4.64 million on its entire non-U.S. profits of $1.344 billion

    The problem here is that Ireland offers ridiculously low tax rates to attract investment and employment.
    They realize that the spending and the taxes Ireland gains from income taxes and sales taxes paid by the employees and the jobs that are created helps Ireland more than the corporate tax. So they set crazy low rates cor corporate taxes and Facebook and Google set up data centers there.

    I'm hard pressed to declare this a totally bad idea. If it works for Ireland, good for them. If it works for Facebook and Google, how can you blame them for doing exactly what the law was set up to encourage?

    The US can fix their tax laws too. They could easily make it more profitable to keep the investment mostly at home. Irish tax and legislation isn't exactly secret sauce. Washington State gives Boeing and Microsoft and Amazon astounding tax breaks just to keep its citizens employed. So do a lot of other states.

    Side note: There is a school of thought that says taxing corporations is counter productive, and taxing the compensation AND THE PERKS of people that work for the corporations makes more sense. (Lets not start the corporate owned cars, planes, yachts and houses rant m'Kay? I said "compensation"). When you get right down to it, the reasons corporations are taxed is to gain some measure of government control over them [businessweek.com], not to gain any real tax revenue that would not otherwise be collected from shareholders or employees.

  • by skelly33 (891182) on Friday December 28, 2012 @07:20PM (#42415027)
    "Making corporations paying taxes on profits is double taxation and should not be done. Rather the profits should pass through to the owners (investors) and then the investors should pay taxes as if that was their earned income."

    As I have no mod points I will simply bump this post with a response. This is an interesting assertion that I have not heard before. Anyone have any solid counter-arguments? I'm not sure I buy the whole "double-taxation" aspect - where is it doubled? If you are referring to the revenue coming into the company being taxed and then paying out to employees who are also taxed on income, then that situation is false. The cost of wages is a tax deduction for the company and they would not be taxed on those dollars that are paid out as an operating expense.

    Regardless, I think the premise falls in line with the argument that "corporations are not people", and therefore should not be able to own property, have rights, or, in this case, be taxable. It's the owners of the company who bear those resources/responsibilities.Personally, it seems to me that eliminating corporate tax on profits would substantially benefit the growth of a company and could consequently lead to a number of beneficial side effects including higher employment rates, higher wages, and overall national economic growth. It would most certainly help small businesses which struggle the most and which are among the top sources of employment in the U.S. Since the biggest players are already skirting around this responsibility anyway, why not formalize the model for the betterment of all?
  • by Dcnjoe60 (682885) on Friday December 28, 2012 @07:21PM (#42415035)

    Maybe a simple solution is to not tax corporations income at all and to pass the taxable income to the owners of the corporations like a partnership. If you own 10% of the company, then you must claim 10% of the net income on your personal taxes. If you own .0001%, then you claim .0001%. In this modern age of computers, corporations can issue 1099 statements with your weighted average share of income.

    Doing so treats corporate income like any other business income for tax purposes and dividends just become a return on capital investment. The downside to all of this is that some very wealthy people won't be able to shelter their money in off shore corporations any more because they will have to claim it as personal income just like a sole proprietor or partner.

  • by gbjbaanb (229885) on Friday December 28, 2012 @07:37PM (#42415143)

    actually, you're probably paying way more tax that you're required to pay - as seen by the recent scandals in the UK where various celebrities simply pay their money into an offshore account owned by a privately-held company and then take out a loan from said company, thus meaning their income is roughly 0, and therefore they don't have any tax to pay.

    See, these schemes are quite legal, and the celebrities involved weren't required to pay any tax on an income on nothing, so why do you pay tax?

    'course, said schemes are incredibly dodgy and caused a lot of backlash from the public who do see tax as a necessary evil, and rich people being able to scam their way to not paying anything as an even greater evil. The only real solution is to simplify the tax laws considerably so clever accountants cannot come up with these workarounds and loopholes. Oh, and to refuse to recognise the tax status of countries that have 0% tax systems, or to make companies that do "set up shop" (usually a post-office box) in these countries have a certain percentage of their workforce be employed there.

  • by Anonymous Coward on Friday December 28, 2012 @08:09PM (#42415449)

    From what I understand from Dutch taxation on corporations (not one man companies) are that they are allowed only a small amount of money in the bank to cover operations. Any excess money should be payed as bonuses, dividends for which eventually a person will pay income tax over.

    If the corporation decides to keep the excess it will have to pay income taxes over the profits (and income tax over the interest gained). If the corporation in the next year will spent this money (investments, bonuses, dividends) than this expenditure is subtracted from that year's profit, and through this, the tax is payed back (unless tax rates had changed in that year); so there is no double taxation.

    I am not sure if this works for corporations, but as a person (one man companies) we can average out the profit and losses over a three year period, this way we actually get income tax back when we have a loss year. Also useful when your salaries has changed substantially making it possible to get below certain tax bracket.

  • by CaptainLard (1902452) on Friday December 28, 2012 @08:10PM (#42415467)
    Ok so Ireland gets $4M they wouldn't have otherwise got as a tax haven. But how is that working out for them? Aren't they on the verge of bankruptcy? Did they become a tax haven before or after their economy went to shit? How is being a tax haven helping them out of it? I realize its a complex problem with many causes all interconnected through the global economy. But can someone tell me if its really a sound financial policy to reduce your tax rate to virtually nothing? A big point of contention for the US is it has one of the highest corporate tax rates in the world (not counting exemptions, and breaks). Is that the only thing keeping us afloat? How are the tax havens doing financially when corporations just register their companies there for the low rates and don't actually hire anyone aside from the guy that checks the PO box?
  • Re:Tax avoidance (Score:4, Interesting)

    by geekoid (135745) <dadinportland @ y a hoo.com> on Friday December 28, 2012 @08:51PM (#42415839) Homepage Journal

    I guess thats we birth rates are down.

    You might want to get a reality check on that opinion.

    The Great Society worked. The money for it has been stripped by the pubs.
    I used to be poor. very poor. No one I knew was having more kids for money. Even the most poor not that doesn't make sense. However low education, emotional stability and boredom can lead to more sex.

    The problem we have no has NOTHING to do with Lyndon Johnson. A bunch of banker and financial 'experts' from around the world at the largest institutions lied, cheated, and stole. THAT is why we are in this mess.
    Had Greece(and the world) been given correct data, they would not be in this mess. Note that countries with strongly regulated financial system weren't hit that badly at all. Countries with good education and health care system. The impact they did feel was do to the country with not so well regulated financial systems being hit.

    It's the same thing. Every financial scandal that impacted the economy at large cause the pubs to scream 'it's the social program fault' and never at the actually liars who created the mess.

    no no, all these problems are becasue poor people have kids.

  • Re:Tax avoidance (Score:5, Interesting)

    by tomtomtom (580791) on Friday December 28, 2012 @09:01PM (#42415923)

    Well, when a fire erupts at the Facebook HQ, simply don't send the firemen when Facebook calls and tell them to contract a private firefighting company. They will have the fire put down by that company and will simply pay an invoice for the services rendered. :-)

    Actually, this is exactly what used to happen before (roughly, and depending on where you live) the early to mid 19th century. The earliest firefighters in modern times were either volunteers or employed on a private contractual basis (ie they would literally turn up at the scene of a fire and try to negotiate payment before putting it out). As insurance developed in the 17th century, naturally insurers started to provide their own firefighters to reduce the losses sustained to fire. The insurers in London, for example, set up a system after the Great Fire of 1666 whereby each had their own group of firemen and they placed "fire insurance marks" on each house so that they could identify whether their unit was supposed to fight a particular fire or not. Eventually the usual pressures of commerce meant that these units usually merged into a single unit covering the whole of London across multiple insurers in the early to mid 19th century, however, still under a model of privately funded provision.

    What happened next could be viewed as an example of "corporate welfare"... the insurers lost large sums in a few particularly bad fires and they decided as a result of this that they would lobby the government to provide a beefed-up firefighting service at taxpayers' expense. At the same time, there was a growing movement to "profesionalise" the remaining voluntary provision in other parts of the world which led to them becoming paid rather than voluntary. Following the model set in the insurer-led markets, these areas paid their firefighters out of the public purse.

    I would suggest that it seems the right thing to do to fund fire defence by extracting the costs directly from insurers on an incident basis rather than simply relying on general taxation - i.e. if my house catches fire, my insurer would then have to pay the government back the cost involved in calling the fire brigade out (you can argue about the corner case of how to deal with people who are uninsured and whether you fund their costs from general taxation, a levy on those who are insured, or by trying to pursue them individually). One benefit is that the insurers then have even more incentive (beyond just the threat of loss) to ensure that fire prevention measures are adequate. You could also compare this to the idea that the court system should be self-funding through filing fees etc. Just because it's a legitimate use of a government monopoly, doesn't mean it has to be funded through general taxation.

  • My ideas to fix this (Score:4, Interesting)

    by SydShamino (547793) on Saturday December 29, 2012 @12:50AM (#42417409)

    1. Lower the corporate tax rate, and raise the unearned income rates in response. This fixes the problem with richer people paying an effective tax rate lower than poorer people and makes it less likely that companies would want to set up such complicated shell corps. It has the negative effect of hurting the retirement of anyone that has all of their money in non-Roth investments suddenly subject to the new higher rates.

    That's a pretty common solution. I think this one also works and is more novel:

    2. Require companies to pay taxes based on the nationality and/or country of residence of the majority of their executive officers and board of directors. The tax rate is based on the income earned by all subsidiaries. This means that Facebook wouldn't have to just set up shell corporations in other countries, they would have to find a board made up of non-US people, and likely move the top executives out of the country, too. And at that point, well, they aren't really a US company any more at all, and it doesn't matter if they pay US taxes on their non-US income. But really I don't think most companies would go to that effort, as that is far beyond their fiduciary duty to their American shareholders. While business is offshore-able, most people still want to live in the same country as their friends and family. I think this can be used to "fairness'" advantage in tax law.

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