Facebook's UK firm paid £28m in tax despite revenue of £1.6bn

Facebook’s UK company paid just £28m in taxes in 2018, even though its revenue surged by more than 30% to £1.6bn.

New accounts filed by the company show that it made only £96.6m in pre-tax profits, largely because it paid more than £666m in unexplained “administrative expenses” and nearly £860m in sales costs.

That means that only about 6% of its gross revenue, which mainly comes from advertisers, was converted into taxable profits.

Net revenue from advertisers at Facebook UK climbed by more than 50%, to £797m.

In 2018, Facebook (FB) had almost 2,000 employees in the UK, or about 5% of its global workforce. The 2018 headcount is up from about 1,300 in the previous year.

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The company provides marketing services, support, and engineering services to other parts of Facebook’s global operation. About 56% of its UK employees are engineering staff, while 857 work in sales support and marketing.

The UK company paid more £230m in wages and salaries to those employees, while research and development costs climbed by 34% to £356m.

“The UK is now one of Facebook’s most important hubs for global innovation. We continue to grow and invest heavily in the UK and by the end of the year we’ll employ 3,000 people here,” said Steve Hatch, vice-president for Northern Europe at Facebook, on Friday.

Hatch noted that, since April 2016, revenue from large UK customers supported by teams in the country was recorded in the UK, such that “any taxable profit [relating to those customers] is subject to UK corporation tax.”

“These high-skilled jobs are not only working on products like WhatsApp and Workplace but also help develop technology to proactively detect and remove malicious content from our platforms. Businesses across the country use our platforms to grow and revenue from customers supported by our UK teams is now recorded here so that any taxable profit is subject to UK corporation tax.”

The accounts were published just two days after international leaders announced progress on a plan to prevent large multinational companies such as Facebook from avoiding taxes by shifting profits between countries.

A proposal released on Wednesday by the OECD would allow countries to tax huge companies on the actual sales within their territories, rather than on the profits booked in their accounts.

The OECD said that the current rules, which are around a century old, “are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world.”

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Last month, Amazon was criticised for paying just £14.7m in taxes in the UK, despite making more than £2.3bn in revenue.

The change would not just impact technology companies, but rather many highly profitable firms, including car brands.

Many large companies pay taxes in lower tax jurisdictions on sales generated elsewhere.

Countries such as Ireland, whose tax laws have been under scrutiny for years, would stand to lose from the proposals.

Ireland is home to the European headquarters of major technology companies like Facebook, but the country’s low 12.5% corporate tax rate has frustrated other countries. Many giants in the country pay effective tax rates that are even lower.

Larger countries, such as the US, China, and the UK would benefit from the new OECD framework if it came into effect.