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Business & Finance Series: Expert Comment

Facebook is 'free-riding' on British consumers, says City tax avoidance expert

Professor Ronen Palan gives his reaction to the news that Facebook paid £4,372 in corporation tax in 2014

by Ed Grover (Senior Communications Officer)

Facebook's UK arm is "free-riding" on British consumers, according to City academic and tax avoidance expert Professor Ronen Palan

The social network company is reported to have paid the small amount of £4,327 in corporation tax in 2014, with the company operating at a loss after paying out around £35 million to its UK staff in a share bonus scheme.

Professor Palan, of the Department of International Politics, is the co-author of the book Tax havens: How Globalization Really Works.

He said: “The story does not follow, exactly, the run-of-the-mill tax avoidance corporate strategy, known euphemistically as tax planning.

“Facebook is unique in that it adopts, on the one hand, a John Lewis type of strategy of paying its workers well rather than shareholders, at least for the time being – and that is to be applauded.

“At the same time, Facebook is using the infamous Double Irish technique of tax avoidance.

"Considering that Facebook’s customers and the source of their profit in the UK are worth so much for Facebook due to the excellent infrastructural support of a rich country, tax avoidance is a form of free-riding on others – in this case Facebook, is free-riding on its British consumers.”

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." They added that all the firm's employees paid UK income tax on their payouts.

The news comes after the UK Chancellor George Osborne announced in his March Budget that he would continue with plans to introduce a so-called Google Tax on companies that moved their profits overseas.

In reaction to the Budget speech, Professor Palan expressed doubt that the policy would be successful, pointing to a similar, failed, approach by former US President John F Kennedy in the 1960s.

Ahead of the UK General Election in May, Professor Palan described George Osborne and the Conservative government as "first-class actors" in relation to their public claims about attempting to reduce corporate tax avoidance.

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