• by Sean Hargrave , Staff Writer, October 8, 2018

The big news is that Facebook is claiming to now account for UK ad sales in its UK tax filings -- meaning that its 2017 tax bill has trebled to GBP15.8m. However, because it dished out shares to employees, the company earned a tax credit that -- completely legally -- halves its liability to GBP7.4m. This is against revenue of GBP1.2bn and so question marks will still be raised at how the company can whittle that down to such a low liability?

An initial tax bill of GBP15.8m would suggest, with corporation tax at 19%, that costs brought down the pre-tax profit to the GBP80m mark. That means that way over a billion pounds worth of revenue was considered a cost or was deducted in one way or another so it ended up not being shown as taxable profit. Seems pretty high, doesn't it?

We also have the story that PayPal has been in discussion with the UK tax authorities, HMRC, and discovered that while it paid just GBP815,000 in 2016, its 2017 liability was GBP4.13m. That's getting on for a bill five times higher than the year before. It just shows what wonders a chat with the tax man can do. PayPal has been quick to point out that is pays all UK tax it is legally obliged to. It didn't quite go as far as Facebook and say that business in the UK would be taxed fully in the UK. 

It's worth remembering that regardless of what the US tech giants say on tax, no matter how much they are committed to paying UK tax on UK earnings, there are still plenty of tricks to make revenue disappear to another low taxation regime. I have no idea if any tech giants do this but a common trick is to pay a huge licensing fee for the use of the company's own name. This can be used to ensure huge sums go abroad to be taxed elsewhere for simply using the company's own name. 

As for today's news that Facebook is claiming to be paying full UK tax on its UK earnings and PayPal's chat HMRC has seen its tax bill rise fivefold across two consecutive years, one can only say it's a move in the right direction. 

It's hard to say how much is due to the threat of the Digital Services Tax but it is almost certainly the result of the tech giants seeing the tide is turning against them in Europe. These giant companies can't dominate our industries and then not pay their full and fair share of tax in the countries where it was earned. 

The message seems to be getting through and the tech giants show signs of wanting to be seen, at the very least, as being legal in the UK in how they prepare their accounts and are moving towards claiming to pay UK tax on UK earnings in full. The UK Government knows the latter is more of a goodwill statement than reality because UK earnings can be, legally, whittled down with costs that see money diverted elsewhere. However, it's a move in the right direction. 

The Digital Services Tax is looming large. I'm not so sure it will ever come into play but it's a useful rallying call to focus the minds of the US tech giants to do better when it comes to paying their fair share of tax.