Facebook to pay more tax in the UK while FTSE 100 tax take drops

It has been widely reported that social media giant Facebook is changing its tax structure in Europe which will result in it paying higher levels of tax in the UK. The profits from the majority of Facebook’s advertising revenue initiated in Britain will now be taxed in the UK rather than being routed through Ireland, which has a lower rate of corporation tax.

Experts have said that international and national changes to taxation law are likely reasons for Facebook to have changed their structures although the multinational has faced criticism, like other US companies Google and Starbucks, for the low level of tax it has paid in the UK up to now. In the UK the diverted profits tax has been introduced which charges companies a 25% tax rate on profits on British revenue that the country’s tax authorities consider to be artificially moved overseas to avoid the British system.

Reacting to the news taxation expert, Richard Murphy, wrote in his blog, “First, there is nothing magnanimous about this, Ireland has been forced to scrap the Double Irish tax arrangement that I helped draw attention to so long ago when first writing on Google and its tax affairs. Facebook did, as a result, have to bite the bullet on this issue sometime soon. It has just decided to get on with it and try to claim some credit as a result for something it had no choice but do.”

Meanwhile, taxation campaign group, the Taxpayers Alliance said, “The fact that Facebook has taken a voluntary decision to change its structure so it pays more corporation tax just goes to show how absurd the system has become. The outdated tax system is simply not suitable for the modern, global economy and leaves the tax liabilities of multinationals open to honest dispute. Instead of announcing another round of ineffectual “clampdowns” at the Budget, the Chancellor should rethink corporation tax in it’s entirety.”

In response to public debate about the corporation tax paid by multinationals the HMRC recently produce a briefing to explain UK tax laws although some of its assertions have been questioned by Murphy. Meanwhile Radio 4’s the Bottom Line has recently discussed corporation tax.

Separately the Supreme Court has ruled that investment banks, Deutsche Bank and UBS should pay back tax to HMRC after it ruled that bonus schemes they ran  just over a decade ago were set up expressly to avoid the payment of tax. The bonuses were paid in redeemable shares in offshore companies set up for the purposes of the schemes rather than paid directly. However, employees were able to redeem the shares and gain the cash after fulfilling minimal conditions which in both cases were judged as not being for commercial purposes.

Meanwhile research from accountancy firm, UHY Hacker Young has found that the average effective tax rate (the average percentage at which overall company profits are taxed) paid by FTSE 100 companies has fallen to its lowest level since the recession, dropping to just 22.6% last year – down a quarter from 30.1% five years ago. Falling corporation tax rates and companies making maximum use of tax allowances are key drivers behind the decline, the firm said.

Clive Gawthorpe, partner said: “FTSE 100 firms are seeing their tax bills dwindle as a percentage of profits. The declining rate at which the UK’s largest companies are paying out tax is not going to play well with critics who are already up in arms over corporation tax ‘sweetheart’ deals with multinationals like Google.”

“However, this is less the result of rampant aggressive tax avoidance and more to do with changes to tax rates and reliefs, as well as profitability coming under pressure in some sectors such as pharmaceuticals. Last year’s cut in corporation tax rates has fuelled the downward spiral, and this looks set to continue given that further decreases are planned in the next few years.”

From April 2015, the corporation tax rate for large businesses was cut to 20% from 21% the year before and 23% in 2013.This is set to reduce to 18% by 2020.

 

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