Facebook, Google: Tax Is The Price For Buying Public 'Likes'

Have the American tech giants started to finally get it? Facebook's surprise announcement this morning that it will begin to pay UK corporation tax on UK earnings seems to at least suggest a penny is dropping. The full details have yet to emerge, but according to a BBC report, the social media giant will begin doing what previously seemed unthinkable. Instead of pretending its ad sales for the UK come through Ireland -- in a way that could only ever make sense to a devious accountant -- it is actually going to admit that UK sales come from the UK.

It seems wrong at this stage to applaud what should be straightforward business practice and an end to a devious way of legally avoiding tax, but at least the social giant seems to have gotten an idea how angry people are with tech companies that collectively rake in many hundreds of millions and possibly billions and yet pay virtually no tax because profits are syphoned off to some offshore island via whatever part of the EU offers the easiest route. By the way, it's usually Ireland that is responsible here. How ironic that a country relying on EU bailouts to survive is one of the primary avenues for tech giants to avoid paying millions of pounds, or Euros, in tax. Just think about it for a minute -- just contemplate the irony, a bailed-out country having to impose austerity because income doesn't anywhere near match outgoings.

Time for another piece of irony that will either make you chuckle or hit the desk in anger. You've probably heard before that you almost certainly paid more income tax last year than Facebook paid in corporation tax -- hint, it only contributed a little over GBP4,000, so anyone on the UK's average salary can claim this. Last night's Channel 4 News put this into further perspective by revealing that Facebook actually makes more out of HMRC, which is supposed to collect tax, than it actually pays that very same authority in tax. I kid you not -- Facebook earned around six times more in advertising revenue from HMRC than it bothered to pay them in corporation tax. You really couldn't make this stuff up, could you?

Both Facebook and Google face major hurdles in Europe. They're both pretty fortunate that one of the major gripes is not just how they pay, or rather don't pay tax, but rather how they handle data. They're lucky because this is handled country by country and so there is little concerted EU action. Facebook is in trouble, again, in Germany over privacy but I suspect it can live with another court telling it to deal with data in a different way. Very little will come of this. However, where the EU can come together is with competition -- and thus, that's why Google is waiting to hear a long-overdue judgement relating to anticompetitive behaviour in search results. Trust me, when it does eventually come, the European Commission will want to give the tech giant a heavy punch on the nose with a big fine and insist on changes that prevent it from prioritising its own services.

However, how many are wondering when the fine does eventually land whether it will bear any resemblance to how much Google has been earning through what the European Commission is likely to view as anti-competitive behaviour? If it's money you're talking about, it would be very hard to inflict more than a mosquito bite on any of the American tech giants.

That changes, though, when you start to talk about public perception and there's nothing worse for Google and Facebook to be publicly seen as aggressively avoiding tax. An accountant may be in a position to say how it technically doesn't break any laws but in the court of public judgement these companies are as guilty as sin. At a time of public austerity, it is truly galling to see Google and Facebook smirk as they funnel funds out of the UK to avoid paying their fair share. The person in the street simply won't accept that companies with huge offices in London, employing thousands of members of staff who sell billions of pounds worth of advertising are actually all doing so via Dublin and some offshore island in the middle of the Atlantic.

And it is public opinion that these companies are most frightened by, not the tax regulators or the suits in Brussels whose fines probably won't amount to more than a few hour's worth of global turnover.

So, we have Google now holding up its hand and paying some back tax -- an absolutely pittance, it has to be said -- and now we have Facebook admitting that its Irish set up is pretty dodgy to say the least and they will, from 2017, start paying something like the amount of tax they should have been paying for the past decade or so.

These guys have highly paid lawyers arguing their cases in Brussels but the one thing they can't make us do is "like" them and that has to be a concern. So much so, that after a decade or so of thumbing a nose at the tax authorities, they are finally getting the point. Legally (but not morally) avoiding paying their fair share has been fun and highly profitable, but it's now time to do what they encourage advertisers to do -- pay for some popularity.

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