Facebook UK Paid £35m In Staff Bonuses, But Only £4,327 In Corporation Tax (gu.com) 262
New submitter Phil Ronan writes: After getting away with paying £0 corporate tax in 2013, Facebook UK has announced that its corporate tax payment for 2014 (total revenue: £105 million) is going to be £4,327. This is a tiny fraction of the £35 million pounds given away by the company in staff bonuses over the same period. "The share scheme was worth an average of more than £96,000 for each member of staff. Once salaries were taken into account, a British employee of Facebook received more than £210,000 on average. ... A spokesperson for Facebook said: 'We are compliant with UK tax law, and in fact in all countries where we have operations and offices. We continue to grow our business activities in the UK.' She added that all the firm’s employees paid UK income tax on their payouts."
Facebook says it was just an honest mistake (Score:5, Funny)
Re: Facebook says it was just an honest mistake (Score:5, Insightful)
Wow, the hexedecimal is strong with you.
Re: Facebook says it was just an honest mistake (Score:5, Informative)
Re: Facebook says it was just an honest mistake (Score:4, Informative)
Hah that isn't hex it is scientific notation, but you knew that already didn't you?
Actually it is hex. 10e7 in hex is the same as 4327 in decimal. Even though I usually pick up on stuff like that, I have to admit that I would completely have missed this one, partly because I wasn't even trying think it might make sense in hex.
So the taxes were collected from salaries instead? (Score:5, Insightful)
(North American here, not an expert on British tax rates)
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Is the British corporate rate that different from the personal rate? Did the British government not collect the taxes either way, or did I miss something?
The main complaint is that multinationals offshore their profits by e.g. licensing key bits of IP from a subsidiary in a tax haven. 'We would have made a profit, but we paid $100 million to use the Facebook logo to Facebook Holdings (Cayman Islands). ' (not an actual quote).
So the answer is, the US government may collect some of it down the line but not the British government.
Transfer pricing (Score:2, Insightful)
FB employs very few people in the UK, what it does is known as transfer pricing.
It creates an asset that is held by an off shore low tax country, it then licenses that asset from the UK company to remove the tax liability in the UK.
The assets are typically synthetic, designed exactly for transfer pricing, so FB UK will be paying for the right to the trademark Facebook, and licenses for patents, and so on.
The EU and US came up with this plan back in the 90's, they were going to be the IP economies, licensing
Re:So the taxes were collected from salaries inste (Score:4, Informative)
In the UK a corporation takes in revenue - from that revenue, it deducts all necessary outgoings such as operating expenses, wages, investment, acquisitions (asset or otherwise) etc etc. What is left is the profit. Corporation Tax is based on that profit.
According to the full accounts, Facebook made a loss of £28.4Million in the previous financial year off of a turn over of £104Million (the accounts list "administrative expenses" of £131.5Million on that turn over).
The bulk of that administrative expense was staff related costs - a wage bill of £40.8Million, and a deferred share based payments charge of £35.5Million, which along with employers contributions totals £86.3Million.
The figure of £4,327 is based on the loss, as a nominal figure.
The figure of £35Million is based on share options and grants maturing for staff - they aren't straight bonuses, they have been on the books for a long time.
Re:So the taxes were collected from salaries inste (Score:4, Insightful)
The point is not that the tax wasn't paid on the money handed to employees, it's that it clearly wasn't paid on something else.
You don't hand out £35m in bonuses to employees if you only made £15000 profit (what you would approximately need to in order to pay ~£4000 tax). Clearly the company is doing well, and making a large profit, or the management wouldn't feel the need to give everyone bonuses, so why then is the tax bill not higher?
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You do pay out that £35Million if its been on the books as future liabilities and it matures in the current financial year, so long as your cash flow allows you to.
The problem here is the confusion that deferred bonuses and share options creates in situations such as these - the options and bonuses were earned in previous years, and matured in these accounts financial years, so it generates an "odd" impression of the current years accounts.
Re:So the taxes were collected from salaries inste (Score:5, Informative)
That would be a fair comment if they'd paid much tax over the past 4 years (the typical life span of share vesting schemes in the tech industry), but Facebook paid £0 corporation tax in the UK in 2012, 2013 and 2014.
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And Facebook has been around for longer than 2012, 2013, 2014 and 2015, so its had time to accrue year on year liabilities like this. Facebook hasn't just taken one single liability, its actually done the intelligent thing and spread the liabilities out across the years so it doesnt get hit with one £300Million bill.
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When you make a £28.4MM loss, you would expect heads to roll but instead FB continues to award their staff. The employees have been rewarded for their loyalty with a huge reward as their options/stock awards vest, which is something that FB can't apparently afford to keep paying out in the UK, based on their losses. They're either lying to HMRC or they're lying to their investors!
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They're either lying to HMRC or they're lying to their investors!
Neither... FB exists as a company outside of the UK, so you're only looking at a small slice of it...
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Re:So the taxes were collected from salaries inste (Score:5, Insightful)
Then the salaries of the employees are taxed - taken from the already taxed profits the corporation made.
Um. No.
Profit is what's left when every expense has been subtracted. If you don't have anything left after paying your employees, you made no profit and don't have to pay tax for it.
Unless it's really different in the UK; which I doubt.
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The point is that the UK government gets its taxes either way, whether Facebook keeps the profits and pays corporate tax, or gives out the profits as bonuses to employees and those employees pay income tax.
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Corporation tax and wages are taxed at different rates, so there can be a difference in Treasury revenue between the two.
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Correct. And income tax is generally higher than corporate tax, so the UK government actually got more taxes out of this than they would have if Facebook had taxed this at corporate rates. Which means that anybody who complains about this as if it were depriving the UK government of money is a blithering idiot.
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No, you are ignorant.
This isn't a matter of paying bonuses vs. paying corporation tax. This is a matter of accurately reporting revenue in the country where it was really earned. What is happening is that Facebook is reporting that sales made by UK-based sales people to UK-based customers (to send advertisements to UK-based computers) is earned in Ireland.
If the revenue were prop
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They do report the UK revenue accurately: it's 105 million pounds. But they get taxed on profits, not revenues. Profits is what is left after expenses are accounted for, salaries and bonuses are paid, and money is paid back to the parent corporation, which after all, created the ideas that allowed Facebook UK to make any revenue at all.
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Oh really? [thejournal.ie]
It may be legal, it's not honourable.
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Wrong, wrong, wrong. How many more people have to explain to you. Why are you shilling for Facebook?
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So far, none have. Go give it a try.
I'm "shilling" for free markets and liberty; those do indeed pay me.
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As well as the fact that they aren't giving all their profits away as bonuses, there's also the fact that expecting employees to pay the tax rather than the company paying it is a very different thing indeed. Even *if* the government would get the same either way. Which they wouldn't as rates and allowances vary.
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No, there is in fact no difference who pays the tax.
True, the rates are different: by giving out this money in bonuses, the UK government ended up with more revenue. That's unfortunate, but kudos to
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Are you a total fuckwit?
Revenue: £105m
Salaries/bonuses: £35m
Other costs: £70m
Profit: £20k
Tax paid on profit: £4k
The fact that employees also pay tax on their salaries is totally fucking irrelevant.
Now lets explore that £70m in 'Other costs':
Legitimate business expenses: £40m
Fucked in transfer pricing to avoid tax commitments: £30m
Tax that should be paid: x% of £30m ~= £6m
So Facebook are
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No, but the company simply adjusts salaries and compensations according to how much they have to pay.
It doesn't matter whether it's "the same money"; one pound is one pound to the UK government, regardless of who wrote the check.
(Sorry this simple fact is so baffling and disturbing to you that you need to resort to insults.)
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The point is that the UK government gets its taxes either way
No, the point is that they gave their staff massive bonuses and then funnelled the rest of the profit out of the country so that they could avoid paying corporation tax on it. The government lost out on tax due on that profit because they used a loophole to avoid it.
It's legal but morally dubious and there are international efforts to stop it happening.
Re:So the taxes were collected from salaries inste (Score:5, Informative)
The thing is, Facebook and other massive transnationals (Google, Apple, etc) stow their IP in a country with very low corporate tax rates (Ireland and Cayman Isl. are common), then that parent company charges huge "management fees" or other fees to use the IP in the target country (UK in this scenario). So if they projected to make an annual profit of £100m in the UK, the Irish entity would charge £100m in fees. Facebook UK now makes no profit, but Facebook Ireland makes an additional £100m. Any additional profits can be handed out as bonuses (if they're going to lose a significant portion of the money anyway, they'd rather give it to employees than the government).
This is all completely legal, and has been the bane of politicians around the world for decades. If there were an easy fix, it would have been done by now.
Of course, that's just the ELI5 version, it all gets much more complicated when used in the real world. See here [wikipedia.org] for more.
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I understand that part, what I don't get is what's the long game? They build a huge amount of capital in Ireland, Bermuda, the Caymans, etc. but then what? If they want to actually use that money for something in a country like the US they're going to have to pay taxes on it, no? Seems to me it's really a tax deferral strategy and not avoidance?
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Note that frequently one nation or another caves and has a 'tax holiday' on repatriating money. So they stockpile and invest even if it's a dead end and one day they can shuffle it around. So deferral of the tax can have very nice situations. I'm sure there's other accounting games that probably revolve around repatriating during some period with relatively poor business results to be able to avoid it looking like profit.
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But you're right. Cash held overseas is simply worth less because it costs so much to transfer it back to the US. That's why I think a lower corporate tax (when combined with other tax changes) could encourage investment and higher salaries in the US by letting companies bring much of the $2.1 trillion currently held overseas ba
What would you use it for in the U.S.? (Score:3)
I understand that part, what I don't get is what's the long game? They build a huge amount of capital in Ireland, Bermuda, the Caymans, etc. but then what? If they want to actually use that money for something in a country like the US they're going to have to pay taxes on it, no? Seems to me it's really a tax deferral strategy and not avoidance?
What would you use it for in the U.S.?
Build factories? What kind of idiot builds factories in the U.S.?
(1) Labor laws are more strict
(2) There are more unfunded mandates on U.S. labor, since there's no single payer medical, etc.
(3) Environmental laws are more strict
(4) Raw materials, such as Lithium for batteries, would have to be imported
(5) Component materials, such as chips, would have to be imported
It makes no sense; about the only thing of value to use that money for in the U.S. would probably be real
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If the company does pay it all out to employees, the government taxes it. Tax collected. Check.
This is not the story the summary wants to imply. There are real examples of tax strategies that are truly questionable. Paying out the profit to employees (who get taxed at high rates) is not one.
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What the fuck makes you think that Facebook paid out that money as a tax strategy?
They paid out that money because employing people in London is fucking expensive.
They'd have paid fuck all corporation tax if they were based in Grimsby and didn't pay a fucking bonus at all. The issues is their tax avoidance practices. The bonus figure merely acts as a media friendly way of highlighting just how much cash is sloshing around their UK business.
Transfer pricing (Score:2)
Because what you do is a have a company in the Cayman Islands nominally owned by your cat, and CatFace S.A. (or whatever) bills Facebook UK for IP licensing, consultancy etc. thus reducing the profits in the UK (where taxes are high) and boosting them where they're low.
The thing about salaries and bonuses is a bit of a red herring, I think. Except that in reality a company that made such low profits as they're claiming would probably be firing everyone instead of paying bonuses at those levels.
Branson was
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If you actually bother to read the accounts, licensing in this regard counts for basically nothing of Facebook UK's accounts during the previous financial period - its very very easy to actually see where the money is going, and the bulk of it was on wages and share options maturing for staff, which have long been booked as future liabilities.
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Employees aren't paid out of taxes, they're paid out of the revenue. Profits are Revenue - Expenses(one of which is payroll). I'm not sure where bonuses figure in, though. As a non-accountant, my gut feeling would be that bonuses necessarily come out of profit, or they're not really bonuses.
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It may be the difference between a profit-based "bonus" and a contractual "performance related pay". E.g. sales commission would be an expense to the business, which would be subtracted from revenue to leave profit.
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Nope.
The salaries are paid first, then profit is taxed.
Salaries are not part of profit.
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UK corporations are, in theory, supposed to pay a portion of "national insurance". In practice, the employee pays all of this.
I'm not sure what you mean by this. The company certainly pays more that the "NI deducted" which shows on the payslip. If you mean the company takes their NI commitment into account when deciding what to pay people then yes I agree. If you mean that salaried staff have to pay the full amount from their headline salary, then no.
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If you mean the company takes their NI commitment into account when deciding what to pay people then yes I agree.
This...
Every expense to a company that is tied to an employee, is money that comes out of the employee's pocket.
When I pay someone $15/hr, their real cost to me is about $20/hr, give or take.
When I budget for them, I'm really budgeting $20/hr. If they aren't worth $20/hr, I don't hire them. If I could, I'd give the whole $20/hr to the employee, but the government takes about 1/4 of it, and that is before they take part of the $15 as well directly from the employee.
So the employee might net $12/hr at the e
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If I could, I'd give the whole $20/hr to the employee,
Very altruistic, but illogical and unnecessary. If your employee is willing to work for you for $15/hr, why would you pay him $20/hr? Just because you have the money? You might. I don't know. But a rational businessman would see that his costs for labor have dropped and he can cut prices and increase sales, or maintain prices and return the profit to the investors and shareholders. In a big company, it isn't your money to just hand out as you wish, it's the company's money and there has to be a reason to s
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So as to not make "pay no taxes" a *complete* lie.
No, they realize that there is a context when talking about what people pay in income taxes so that the statement "pay no taxes" means "pay no income taxes". They aren't talking about sales taxes, for example, when they say "pay no taxes", nor do they expect you to jump up and down and say "but they pay property taxes and gas taxes and ...". Nor are people who complain that "the rich" don't pay "their fair share" talking about gasoline or sales taxes. They're talking about income tax. The context is impor
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I think the point of TFA is that facebook hid most of its profits by accounting magic rather than distribute them to employees. The figure for employee bonuses is presented to highlight the scale of profits facebook should have been making.
Hid?
How much money did Facebook Ireland or Facebook Cayman Islands make?
You might find it there.
Wages are always more (Score:2)
In the US, the total individual income is something like 10.5 billion, while the total income is 12 billion. Corporations don't pay income tax on wages--they don't get $100 million, pay taxes on $100 million, then pay $90 million in salaries, and then you receive your paycheck and pay taxes on that. That $90 million is your income for working as part of the business.
Facebook paid 35 million pounds out as bonus wages, and paid very little in taxes. Surprise. Facebook is based in the US; how much are th
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Or quite possibly, stock options (of which, at least in North America, there is no tax until the options are exercised).
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In the US, shares are taxed as income at the time of granting. It's almost certainly the same in the UK.
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Which is why most companies grant options instead.
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Most? I'd like to see statistics on that. Most companies I have worked for have made (taxable) stock grants. Options are something startups like to give out.
TLDR, were any laws broken? (Score:4, Insightful)
If not, what's the complaint? I'm sure the UK government got a nice slice of the pie in the form of income taxes on all those highly paid employees.
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Like it was a crime.
The whole amount of money involved, whether it had stayed in FB's bank account or went into the employees' salaries, was taxed.
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The tax system is broken, that's the problem. Facebook, like most multi-national companies, uses loopholes to avoid paying tax. A loophole is, by definition, an unintended way to get out of paying what the law intended you to pay. So the scandal is really that the tax system is broken, and also that Facebook, like every other big corporation, likes to make massive profits out of our society and then stiff us by subverting the spirit of the law.
Just being technically not illegal isn't really much of a moral
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In this instance all the profit went to the employees, thus instead of being taxed at the corporate level it was taxed at the (higher!) individual level. So what's the difference?
The difference is that the taxes were collected directly from voters who were able to see exactly how much they paid, rather than from a non-voting entity who would pass the tax to voters invisibly. Corporate taxation is all about hiding taxes from the people who pay them, so it's a problem when the taxes don't get appropriately hidden. In order to keep attention from being paid to the actual taxes collected, therefore, those who wish to hide taxes from taxpayers moralize about how corporations aren't payin
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Re:TLDR, were any laws broken? (Score:4, Insightful)
The problem is that all corporations are evil. They should give every cent they make to the government to be handed out according to a fair distribution system.
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I find it hard to believe that Facebook has no profit generating business in the UK.
FB paid out all the profits to their employees, who were taxed.
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They made tons of profits... and then paid them out to their employees as bonuses, leaving them with no net profit. No laws were broken.
If there is one unfortunate thing about it, it's that the UK government actually gets more in taxes that way than they would have through corporate taxes on profits.
Not a bad thing (Score:5, Interesting)
This is actually the way I'd like to see all businesses work. Distribute profits among all employees and tax it as individual income. In a time of stagnant wages and rising inequality what about this practice is bad?
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> Distribute profits among all employees
It's not "all employees". The largest employee benefits and salary are often grossly higher for the highest level staff than for anyone else, even for entire departments which they control, and the difference has effectively doubled in the USA over the last 35 years: the top 1$ of income earners now gather roughly 20% of all the income, and still have roughly 12% of all the income after taxes. Both are roughly double the 1980 figures.
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So what you're saying is...you would be in favor of distributing profits among all employees? Which is what I said also. Yes inequality is a problem that's why I said what I said. I'm befuddled why you would essentially agree with me but phrase it as though you're taking a contrary position.
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This is actually the way I'd like to see all businesses work. Distribute profits among all employees
I'm sure all businesses will be leaping that the chance to implement this just as soon as the shareholders give it the green light...
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Right but so what? I didn't say it was likely to be supported by non-participating shareholders. If we only proposed changes that already had the support of every stakeholder nothing would change, ever.
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But that's not what is happening. Facebook's profits are artificially low because Facebook recognizes and reports a lot of its UK revenue in another country (such as Ireland).
What happens is that Facebook (and Google, etc. ) employ people in the UK with "Sales" in their job titles. These UK
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That's not what they actually did though. The bonuses are just an example of them having money to give out because of their huge revenues. They then moved the rest of their profit offshore, so that they didn't have to pay corporation tax on it.
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The rest was shipped overseas because a lot of the software, ideas, and administration is happening overseas. What right does the UK government have to the value people create outside the UK?
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Profits were not distributed amongst employees.
Uh, yes they were, actually. £35m in profits were distributed. That's 30% of their £105m total revenue.
So, what, are you saying their net margin was something like 70-80% and the other 40-50% of that money got transferred offshore? That seems implausible but if you have some kind of source I'd be open to reading it.
Overall loss? (Score:2)
Seems to be a bit of selective clipping in the description, the key part that is missing is that the company was operating at a £28.5m loss and still ended up paying some amount of corporate tax. Not sure what the problem is? Is the company supposed to have done something wrong by paying out a large bonus that will be taxed individually anyways? While there are some interesting tidbits in the article about things like profit deferral, none of that seems relevant to the case at hand, so I'm somewhat at
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The biggest problem is why Facebook UK made a loss (thus avoiding taxes) -- mostly it was because of the high prices of the letters a, b, c, e, f, k and o which it rents from Facebook US at extortionate rates.
Personal tax rate vs. corp rate in UK (Score:4, Informative)
UK corporate tax rate (on earnings, not income): 20%
(Note: US top Federal corporate tax rate is 35%, along with state corporate tax rates as high as 12%).
UK personal tax rate is 20% up to 42,385 pounds, 40% above that, and 45% above 150,000 pounds.
So frankly, the UK is receiving more tax money on income paid out as salaries above 43K pounds than if it simply retained earnings.
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Aha, well UK VAT is 20% so if they try to spend those capital gains, the tax will come back to the government anyway :)
So? Spewing numbers doesn't mean a thing (Score:3)
Anyway, the first rule of economics "Companies don't pay taxes. People pay taxes."
Does anyone know how much they spent as a business expense? That's what accountants are for. Reduce taxes over the year. "Where going to have this much profit this quarter. Rather than pay the tax, find out what equipment we need and spend it there." Not a damn thing wrong with that and every business and every home owner does the same.
Who Cares? (Score:5, Insightful)
If Facebook (or any other company) paid their LEGAL tax oblation, what's the beef? If they are not cheating and breaking the rules, WHO CARES?
If a resident of the UK somehow get's the idea that Facebook *should* be paying more, then it's up to you to CHANGE THE LAW to make it fair. You guys have elections, you elect the people who write the laws, go make your case with them and insist they change the law..
I get so tired of this, "all big corporations are evil" narrative, especially for companies which are FOLLOWING THE LAW. IMHO MOST companies follow the law, both because it's good for business and because folks don't like going to jail. So can we please stop with this narrative? It's not valid.
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Companies maximise profit, and they influence politicians to get the loopholes they want to avoid paying tax. Your annoyance needs to be focussed on the politicians for doing this, not the companies, I agree. That doesn't mean you should feel good about companies lobbying and then using loopholes to avoid tax.
You obviously have the option of not using companies that behave in ways that you disapprove of. Don't like companies that don't pay a living wage? Boycott them. Don't like companies that go to ex
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Most companies act both ethically, morally and legally. When they don't there are criminal and civil ways to change their behavior.
We need to stop using the default setting that "big companies are out to cheat me" and realize that the vast majority are just out to do business and make some money. There is NOTHING wrong with making money and making lots of money does NOT imply somebody was cheating, yet with today's mindset that's the default setting. OH.... Company X sold BILLIONS of dollars of products
Re: Who Cares? (Score:2)
The law is like a massive code base. Like all such, it has bugs and loopholes. Sure we fix them as soon as we can (generally, more slowly in massive code bases). But at the same time when we find folks using exploits then we defend in every other way we can. That's what's happening here.
(plus: Each one of these outraged news stories is part of the PROCESS by which the bugs get fixed in a democratic society).
Summary: quit complaining about it.
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I will quit complaining about it when the *subject* says "Law allows Company X to pay only Y in taxes!"
The way this is presented matters. This "Big Company" = "Bad" + "UNFAIR" equation has got to stop. It's about the LAW, not the company. But the way it's headlined and written it becomes about the company and not the law in this article. This is BAD journalism, which is becoming commonplace and we need to object to it when we see it. (Go read Orwell's '1984' again and see why..)
Aren't those bonuses taxed? (Score:2)
I assume a large chunk of those bonuses are going to normal employees (tech companies often have 10%+ in yearly bonus as a normal thing).
Those bonuses are taxed. And then they're spent, and thus taxed again.
I dunno what's the income tax on that side of the world, but I'm going to go on a limb that it's going to be more money than corporate tax.
Ha! Suckers! (Score:2)
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Why? In the US, at lease, taxes are paid on net income, not earnings.
http://smallbusiness.chron.com/smallbusiness-taxes-based-revenue-gross-profit-50369.html [chron.com]
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Most people who have successful businesses spend a large amount of their income on stuff related to those businesses. Incorporating lets them handle these expenses as business expenses, meaning they are not taxed as profits. And that is as it should be.
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Yeah, when comparing your corporate salary to self-employment, you do need to keep those numbers into account. But while the employer formally "pays" half of FICA, ultimately, it comes out of your salary either way.
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You realize that tax will still be paid, whether by you-the-corporation or you-the-individual. (Ultimately by you-the-individual, unless you keep the corporate profits in the bank forever and never take them as salary to you-the-person.)
Ahh, another person who doesn't understand the beauty of this system.
The company pays for my truck, it is a business expense. I reimburse the company for "personal use" of the vehicle, but it is not nearly as much as I'd pay in tax on the money.
The company pays for my cell phone, my internet connection, and 50% of my "meals and entertainment", since those are business expenses many times.
Those are "business expenses", so they are paid for with pre-tax dollars. Neither the company nor myself ever pays a di
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And as soon as you make more than you want to pull out as personal salary then it is the way most people do it. As far as I remember the rule of thumb is that if you make more than £100.000 a year it is worth doing.
Unless the inland revenue decide it's just disguised employment [wikipedia.org]. Many people do operate companies to do this, and it can be worthwhile at less than 100k, but you have to make sure that you work for more than one employer (I think within an 18-month period).
Re:Good for them. (Score:4, Interesting)
Absolutely! Governments don't ever do anything for me, whereas corporations bend over backwards to keep me happy, I'd much rather they got my dollars.
P.S. Nice to see Ron Swanson is on Slashdot.
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Actually tax pays for things like the free healthcare in the UK, which whilst without the better outcomes in the US costs far less as a proportion of GDP. The rich are free to pay extra for better care in the UK so I do not understand why they want to take away the right of the poor to healthcare. Unless it is of course because they are evil.
Re: Good. Better private than public. (Score:3)
Says someone posting on the Internet.
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National healthcare performance UK - Expenditure per capita UK $3,405 US 8,508
https://www.gov.uk/government/... [www.gov.uk]
I am from the Internet you ignorant fuckwit.