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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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  • but they're still actual human beings - not a faceless entity - who make the decisions and understand the ramifications, so they and all of the other corporations (and individuals) who seek tax havens are essentially privateers and definitely scumbags.
  • Government makes stupid laws.
    Companies follow those laws.
    This is the fault of the companies and requires more government.

  • Tax avoidance is good business. But I would also want to make sure that USA companies don't totally offshore their revenues ... and jobs. This is why we need tax reform.
    • Re:FB tax avoidance (Score:4, Informative)

      by hguorbray (967940) on Friday December 28, 2012 @06:40PM (#42414611)
      If they are making money off US citizens who are in the US then it seems they should be paying US taxes, but I bet the line is blurred when they are selling 'services' such as allowing marketers access to FB users...

      Certainly when HP sells products overseas they are required by many of the countries in which they sell products to keep the bulk of the revenue for those products inside that country -it seems odd that US companies are allowed to get away with this in the US when they are not allowed to do this elsewhere?

      Here is something I found in the way of background -although the source is somewhat disreputable ;-)

      http://www.goldmansachs.com/our-thinking/topics/accounting-policy/tax-time-foreign-profits-PDF.pdf

      I guess one of the big differences is that most other countries use the 'Territorial' tax system in which the home country's taxation of foreign profits is only the difference between the foreign tax rate and the local one -afaiu

      Can someone without an axe to grind as far as laissez faire capitalism, etc explain how this works?

      thx
      • by besalope (1186101)

        Home Country (Country A): Effective Tax Rate of 35%
        Foreign Country (Country B): Effective Tax Rate of 10%

        The company's operations grossed $100,000,000 (Home currency) in income (before taxes) while operating abroad in Country B. Based on the tax rates, the company would pay $10,000,000 to Country B for taxes. From there, that $10,000,000 is normally deducted from Country A's tax rate to avoid double taxing the income, so what would have been $35,000,000 becomes only $25,000,000 taken in by Country A.

        Th

  • 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.

    • 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.
      • Sure, that will go over well...right after the country that subsidiary is located in agrees to stop taxing it. Of course, if you pass that law and get other countries to agree to not tax the subsidiaries, pretty soon the "parent" company will be based in a no-tax country.
      • 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 Wizzu (30521) on Friday December 28, 2012 @08:02PM (#42415347)

          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.

          This isn't due to a ridiculously low corporate tax rate in Ireland (it's 10% or more according to wikipedia, depending). The country with ridiculously low corporate tax is Cayman Islands (no corporate tax). Ireland's subsidiary pays licensing fees to the subsidiary in Cayman Islands, so that on paper the Ireland profit becomes miniscule, and thus the tax sums are low too.

        • by dnaumov (453672)

          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.

          Somehow when employees are forced to compete for jobs, its okay, when companies are forced to compete for marketshare, thats okay too, but when goverments/countries are forced to compete to attract international business, politicians scream bloody murder.

    • The truth is, facebook only collected X million dollars while making a lot more. As in, all their services and such cost a certain amount of money plus that owed to the government. It is known as embedded taxes, this is a great tool of governments to use in avoiding the general population from understanding their true tax load.

      A tax on corporations is just an indirect tax on those who directly or indirect interact with that corporation. Any penny paid in taxes by the corporation comes from its customers and

  • by holophrastic (221104) on Friday December 28, 2012 @06:26PM (#42414473)

    Seems logical to me. Ireland is happy to get 4 million that they wouldn't otherwise get at all. Ireland's simply undercutting other governments. Makes sense.

    But if you want to collect tax dollars from companies that operate in the .U.S.A., you might want to assess their global revenues, period. Global companies paying global rates makes perfect sense.

    Otherwise, you're looking at a future without tax revenue. Good luck with that. Let me know how it goes.

    On the other hand, you can look at this as simple capitalism. Ireland made a better offer. You lost. Suck it up, or learn to compete.

    Either way, don't bring ethics into it. You're talking about taking someone's money for "the greater good". And you're forcing them to participate. If you're going to discuss ethics, you might want to start with your own.

    • by BitterOak (537666)

      But if you want to collect tax dollars from companies that operate in the .U.S.A., you might want to assess their global revenues, period. Global companies paying global rates makes perfect sense.

      Problem is, many of the large companies that operate in the U.S.A. operate in many countries. If all of them followed the same policy and taxed global revenues, the total tax rates they'd have to pay would exceed 100% pretty rapidly.

      Additionally, such a policy would make it extremely unattractive to operate in the U.S. at all. So Facebook, Google, etc., would simply close their U.S. campuses and move them into Canada. The U.S. would not only lose the employment those companies provide, but also the incom

      • Exactly. So these global companies would need to choose a place to operated -- if all of the countries followed the same policy. That's the point. All of these tax games happen by splitting up a company into multiple places, and playing those places against each other.

        You can't have it all ways. You can't get money, allow everyone to get money, have the company pay money, and not control where they are.

        At some point, you need to either globalize the policy -- having all governments agree to an umbrella

    • by Vaphell (1489021)

      why tax abstract entities at all? Set CIT to 0 and tax the money when it goes to live people if you really have to. People are material and it's them who use roads, police protection and what not. The corps on the other hand are an idea that can uproot and move with few strokes of a pen, good like pinning it down.

    • 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?
  • Come on people, get with it! You realize that Facebook is owned by a member of the "family" right? Look at who the owner is related to, and what they are doing for the Government. I'll bet that after they get paid by the Government for spying, that US citizens actually pay them to exist and be a business.

    /sigh

  • by jmichaelg (148257) on Friday December 28, 2012 @06:33PM (#42414543) Journal
    I suspect the poster, as most people, choose not to pay more tax than they're required to pay.
    • by Anonymous Coward on Friday December 28, 2012 @07:12PM (#42414913)

      Yeah, but I suspect the poster, like most people, doesn't have the option of transferring all his money to a shell corporation in the Cayman Islands so he doesn't have to pay tax on it. If he did that, the IRS would probably put him in jail.

      The law needs to be changed so that it is fair; either he should be able to do that, or Facebook should not.

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

    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.

    • by swillden (191260)

      Any retained earnings by the corporation (profits not passed through to investors) should be taxed as if it were earned income.

      That's not necessary. Profits not paid out as dividends get passed through to investors another way, in the form of higher share values. If investors are taxed on capital gains, they'll pay those taxes when the gains are realized. Plus, eventually the corporation will either spend that money or pay it out, at which point it will be taxed.

    • 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?
      • Re: (Score:3, Insightful)

        by Anonymous Coward

        The double taxation is because income is taxed first as corporate income and then as capital gains (by the shareholders).

        I'm surprised you've not heard this argument before. It's not exactly new. Another problem with corporate income taxes is that corporations don't pay taxes. Their customers and employees do, in the form of higher prices and reduced salaries respectively. A tax on a corporation is just a hidden flat tax on individuals. Not just a flat tax, either; a flat tax with no deductions, exemptions,

    • by Patch86 (1465427)

      Why is "double taxation" a dirty word (phrase) when applied to corporations? I double, triple etc. pay taxes on my money.

      1) I get paid a salary, and pay income tax and national insurance (I'm UK).
      2) I buy something; let's say petrol. I pay VAT (or in this case, fuel duty).
      2a) Incidentally, the petrol supplier will have already paid import duties for this petrol.
      3) I put the petrol in a car and drive it away. To enable that I've paid Road Tax.
      4) On the way home, I cross a toll bridge, and pay the toll.

      So the

  • 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.

     

  • 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!
    • You could have provided a synopsis and link, I'd have believed you after checking the link.

      They have a complex (even worse than their product assembly) ownership structure where most of the profits go to a nonprofit that gives away a few percent of income. Here [economist.com] is a quick overview.
  • 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)

  • Corporations follow the laws of capitalism, not the laws of ethics. They will never pay more than they are legally required. If you don't like it, change the laws.

  • by Warhawke (1312723) on Friday December 28, 2012 @06:58PM (#42414793)

    At risk of being modded down -1: Disagree, there's an important counterpoint worth mentioning here:

    Companies have a legal duty to pay taxes according to the laws.
    Companies theoretically have a moral duty to pay taxes according to the spirit of the law.
    Companies have a legal duty to minimize expenses and maximize returns for their shareholders and investors.

    Accordingly, corporations have a legal duty to engage in legal-but-potentially-morally-questionable tax sheltering to minimize expenses and maximize returns for their shareholders. If a director is not using every tool at his disposal to make a business profitable, then at best he will be fired or reprimanded for being a bad director, and at worst he will be sued for breach of his fiduciary duties.

    It would appear that a better solution is simply to write simpler tax laws that don't create the loopholes in the first place rather than to try to patch the loopholes with more convoluted tax law. But that is so very much unlikely to happen while Congress is immune to the insider trading and securities exchange laws. Congress won't think that this is broken so long as they're the ones making money off of the loopholes, even if it's at the expense of the U.S. taxpayer.

  • 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.

    • You are thinking along the right line. I'm a big advocate of not taxing corporations, and instead taxing individuals.

      The current situation causes corporations to be far too involved in the political process and to make decisions such as location based on a venue shopping process that is generally quite corrupt.

      I think the result would be a much more efficient economy and better political process.

  • by grasshoppa (657393) <skennedy AT tpno-co DOT org> on Friday December 28, 2012 @07:34PM (#42415123) Homepage

    They why is this a problem? If they are paying what they are legally obligated to pay, then why should they be forced to pay more? Who's the authority on how much more they should be paying? Why should they pay more? Ethics? Does that mean there is an ethics tax now?

    If we don't like how companies use the laws that are set up, I guess we know what we need to do, don't we? Make laws that force companies to pay what we feel is justified. Just don't be surprised by the outcome.

  • by sdguero (1112795) on Friday December 28, 2012 @08:15PM (#42415509)
    I.e. diminishing returns.

    The higher you raise corporate taxes, the more inventive ways large profitable companies are going to find to avoid them. So we end up taxing the crap out of small players that can't afford to globablize (and are a small percentage of oerall tax revenue), while the big boys just offshore their financials. If the USA were to lower corporate taxes 80-90% it probably wouldn't be worth the effort for a lot of companies to maintain foreign entities to get the tax benefits. This might make for an interesting economics investigation...
  • 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.

  • by hyanakin (1545359) on Saturday December 29, 2012 @03:56AM (#42418203)

    I still wonder what's good about corporations paying taxes anyway.

    Wouldn't it be more beneficial if they didn't pay taxes?

    So, if corporations didn't have to pay taxes. They would hire more people or pay them more. Those additional hires or higher salaries will then be taxed again. So the Gvt. does get it's money.

    The effect is, that corporations won't have to go offshore for the best tax deal and pay taxes there.

    So we would benefit a lot more if the corporations stayed here - tax free - but in return hire more people or pay higher salaries.

There is hardly a thing in the world that some man can not make a little worse and sell a little cheaper.

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