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A storm is about to be unleashed on Facebook over the amount of back taxes it avoided paying to the UK government. The impending storm is being generated by the raw tax figures relative to turnover in the UK.

facebook back taxes
                                                                                                                                                                           photo: extremetech.com

This is coming a few days after Her Majesty’s Revenue and Customs (HMRC), the UK’s government agency in charge of collecting corporate tax, ended a 10 year investigation of Google’s tax habits between 2005 and 2014. At the end of the investigation, Google was ordered to pay £130 million. An amount some think is too lenient on the tech giant given the amount it makes yearly in the UK.

However no fines or penalties were imposed on Google for the decade-long tax infringement.

For Facebook, the amount of tax it pays is even pathetic. For instance, in the year 2014, the tech giant paid only £4327. This is against revenues in the UK of over £700 million. Figures also show that this habit of paying so little tax is not just restricted to Britain alone. Despite making a profit of over £2.4 billion, Facebook paid only £86 million pound to all tax authorities outside the United States.

Mark Zukerberg  photo: reuters
Mark Zukerberg   photo: reuters

So it was only right the HMRC would open an investigation on Facebook back taxes just like it did for Google. However, in the case of the Facebook back taxes, the period under investigation would cover just five years, from 2010 to 2014. Apparently, Facebook is not just watching and waiting for the outcome of the investigation. Reports say Facebook is actively resisting the investigation.

One method Facebook uses to avoid paying the correct tax is by paying it’s UK employees with stock options and routing most payments through offshore accounts domiciled in the Cayman Islands.

For giant American US corporations like Apple, Amazon and Starbucks, they must view what is happening to Facebook, and Google earlier, as a specific case in a wider problem. These companies have recently come under greater scrutiny from the European Union in Brussels. The charge against them is simply moving money around, especially to tax havens, to avoid paying taxes.

After reporting a fifty two per cent jump in revenue through the increased sales of ads to mobile users, Facebook’s share price soared in response to the quarterly increased in revenue. So it is not all doom and gloom for Facebook. But scrutiny by the HMRC might not be unrelated to this good news for Facebook.

This is why some are thinking that this is a deliberate targeting of US companies for posting record revenues. And to show that the US government is taking this notion seriously, Robert Stack, a senior Treasury official, said that, ‘We are concerned that the EU commission appears to be disproportionately targeting US companies.’

If Facebook is trying to impede the tax investigations, things might get a little messy for it. Taking the Google route would be better for the resolution of these Facebook back taxes in the long run. Cooperate with the HMRC and hope the fine would be as small. And without any penalties too, for breaking the law.

That would be the least painful way going forward.