Over the years, Facebook has been just one company of many tech giants that has faced backlash for using international tax havens. One of the most notable of these was its Irish tax haven. Recently, Facebook announced that it would be dissolving some of its assets in that tax haven.
The Sunday Times initially reported on the changes to Facebook’s filings. Specifically, the news outlet found a new document that Facebook filed with the Irish Companies Registration Office. This document showed that the tech giant had started dissolving three of the holding companies in Ireland.
These holding companies were primarily used to hold global intellectual properties. They licensed that intellectual property to other branches of Facebook in other countries, charging a fee in exchange.
The Past Controversy
The changes to Facebook’s Irish investments are likely in response to criticism of its strategies to reduce corporate tax. One of the biggest instances of lack of trust in Facebook and concern about its use of Irish real estate happened in 2016. That year, the Internal Revenue Service sued Facebook during a probe into its bookkeeping.
There was yet another suit in February 2020. That more recent lawsuit alleged that Facebook’s tax planning management included moving its intellectual property to the Irish subsidiaries. According to that suit, Facebook began shifting that intellectual property in 2010, and during the intervening years, it avoided paying over $9 billion in taxes.
Understandably, such a significant tax evasion using loopholes such as residency of the entity and careful fiduciary planning led to controversy. Many argued that Facebook was not paying its fair share of taxes.
For reference, in 2019, Facebook paid the UK £28.6 million in taxes. This was despite its gross revenue of £2.2 billion from advertisers. Another comparison shows that while the profits compared to the previous year increased by more than 25%, Facebook only paid an extra £100,000 in taxes.
In the last year or so, the controversy regarding Facebook’s reducing its corporate tax via passports and tax havens has increased. This is partly because big tech companies like Facebook have done well during the pandemic while others struggle, as more people spend time online and on social media.
Facebook Always Denies Tax Wrongdoing
However, its most important shareholders, managers, and directors were always quick to point out that the company followed all regulations and laws. It merely took advantage of the same loopholes that other private equity funds and foundation assets do.
According to Facebook, its effective tax rate in the last five years was over 20%. For comparison, the global average is 23%. In late 2018, its effective tax rate was just 13%, but that increased to 25% at the end of 2019.
Facebook’s Reasoning for the Change
A Facebook spokesperson who spoke to The Sunday Times outlined why the company is making the changes. He cited several factors, including that the change aligns its corporate structure with the regions where most of its people and activities are. This involved repatriating the intellectual property licenses for Facebook’s international operations into the United States.
The spokesperson also acknowledged that the change “is consistent with” the future and recent changes in tax laws. Many of those laws are not in place yet but have strong activists supporting them globally.
Google Recently Made a Similar Move
Facebook is not the only tech giant to make changes to its intellectual property recently. In January 2020, Google returned Irish intellectual property holdings to the United States. This was done before the “double Irish” tax loophole was closed. Companies had until 2020 to comply with that loophole’s closure.
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