Increasing accountability

By | Business
Facebook headquarters.Credit@newsroom.fb.com

Special tax arrangements for international businesses operating in the United Kingdom may continue to be a challenging task for Her Majesty’s Revenue and Custom (HMRC) to conquer. However, recent changes concerning companies such as Google and Apple suggest the tax system in the United Kingdom may be adapting in an effort to balance the books in a fairer way. Facebook, one of the largest social media networks in the world, is reportedly changing their tax structure following recent headlines regarding their corporate tax contributions in the United Kingdom. The media speculation over Facebook’s intentions may have a productive influence on how Facebook pays corporate tax in the future, as this information is being discussed more publicly now than before bringing company integrity to the forefront.

Facebook was created in 2004 by Mark Zuckerberg, a young tech entrepreneur who rose over the years to become one of the world’s youngest billionaires. According to Facebook’s newsroom site, the social networking site aims to give people the power to share and make the world more open and connected. The website was the first social network to surpassed one billion registered accounts and over 40 million businesses use this as an additional platform for their products or services. The site is continuously adapting and new features have been introduced over the years such as an integrated instant messenger platform and like buttons on newsfeed posts. To this day, Facebook continues to innovate in order to remain competitive. With live video streaming apps such as Periscope becoming popular, Facebook has recently introduced the option for users to stream live videos. Facebook makes money through advertisements; much like the search engine giant Google. It also makes additional revenue through its virtual games where users may pay with real currency for extras in games such as Farmville, Candy Crush and many more.

In 2015, Facebook’s revenue hit 17.93 billion dollars, an increase of 44 per cent year-over-year. Despite this, Facebook paid little in corporation tax in the United Kingdom last year. Like many other international businesses operating in the United Kingdom, many companies divert their profits to Ireland to bypass paying high corporation taxes. This tax arrangement is known as a ‘double Irish arrangement’, where businesses shift their income from a higher-tax country to a reduced-tax country. Over the past few years, new regulations have been introduced as a method of reducing the amount of companies using this arrangement to bypass paying tax. For example, in 2013 the Irish government announced companies which operate in Ireland need also be tax resident there. This is set to take effect in 2020 for companies with existing operations in Ireland, meaning Facebook and other international giants may have to re-think their tax arrangements.

The HMRC may be pro-active in chasing large multi-nationals regarding their corporate tax payments, however the rise in cases where minimal tax is being paid may suggest changes need to be made within the taxation system in the United Kingdom. Corporate tax in the United Kingdom is currently 20 per cent, an 8% drop since 2010 as an attempt at increasing the competitiveness of the UK’s corporate tax system. The United Kingdom has one of the most reduced rates of corporation tax in the G20 and is taking steps to reduce avoidance opportunities, which may be offered by the financial sector. A recent publication from the Institute for Fiscal Studies recommends the next government takes policy action to increase competitiveness and reduce opportunities to bypass corporate tax in the future.

What may the HMRC do to ensure international businesses pay their share of corporate tax?

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