Mark Zuckerberg admits that Facebook 'may have to pay more tax'

Mark Zuckerberg admits that Facebook ‘may have to pay more’ as he backs reforms on taxing tech giants

  • Facebook founder scheduled to appear Friday at Munich Security Conference 
  • He is expected to announce support for OECD reforms on cross-border taxation 
  • Tech giants like Facebook and Google accused of using loopholes to avoid tax  
  • Countries like the UK and France have threatened to impose ‘digital tax’
  • Zuckerberg, the fifth wealthiest man in the world, is worth nearly $79billion 

Facebook CEO Mark Zuckerberg appears increasingly resigned to the fact that his company will need to fork over billions more in taxes to European governments.

Zuckerberg is expected to agree to newly proposed reforms that are likely to result in him paying billions more in taxes to the British government as well as other developed countries, according to the Times of London.

The Facebook founder, 35, is likely to announce his decision at the Munich Security Conference, which begins on Friday.

Zuckerberg, the fifth richest man in the world, has an estimated net worth of $78.9billion. 

President Trump has threatened European governments, including the United Kingdom and France, with tariffs on their imports if they try to impose additional taxes on American tech firms. 

Facebook CEO Mark Zuckerberg (seen above on Capitol Hill in September) is scheduled to appear at the Munich Security Conference in Germany on Friday

The Trump administration claims that since most tech giants are based in the U.S., any attempt to impose further taxation on those companies is tantamount to discrimination against American firms, thus justifying retaliation. 

The reforms are being proposed by the Paris-based Organization of Economic Development (OECD), which wants to tax internet giants like Facebook and Google.

The European governments say that large multinationals like Facebook, Google, Amazon, and Apple have used complex schemes to avoid paying taxes, like registering their firms in tax havens like Ireland while turning massive profits on the European mainland.

The OECD wants companies to pay a tax rate based on the products and services they sell overall rather than on their profits, which companies can register in low-tax jurisdictions like Ireland.

That would mean companies would have to pay more in taxes to governments even though they physically are not present in their countries.

The Europeans aren’t the only ones accusing Facebook of dodging tax.

A complex, years-long legal battle between Facebook and the IRS will finally be resolved in court, as the company attempts to fend off tax liability that could cost it some $9billion.

The trial will begin this week in US Tax Court, where the IRS will argue that more of Facebook’s profits should have been taxed at the higher U.S. rate, rather than in the company’s Irish subsidiary, The Wall Street Journal reported. 

Bertie Thomson, a Facebook spokeswoman, said the company looks forward to presenting its case in court.

President Trump (above) has threatened to impose tariffs on European imports, including those of France and the United Kingdom, if they follow through on plans to impose a ‘digital tax’ on tech giants like Facebook and Google

‘This trial is about transactions that took place in 2010, when Facebook had no mobile advertising revenue, its international business was nascent, and its digital advertising products were unproven,’ she told the Journal in a statement. 

‘Our business has had hits and misses but we stand behind the actions taken over a decade ago during a time of great risk and uncertainty for the company.’ 

The government has said in court documents that in 2010 Facebook Inc sold the rights to exploit the Facebook platform outside the United States and Canada to Facebook Ireland Holdings.

The price used for the intangible property was determined by Facebook’s tax adviser Ernst & Young (E&Y).

‘The IRS examination team’s preliminary positions suggested that the E&Y valuations of the transferred intangibles were understated by billions of dollars,’ the lawsuit said. E&Y was not immediately available for comment.

The OECD expects that the reforms will likely net an additional $100billion in revenue from several companies.

‘We want the OECD process to succeed so that we have a stable and reliable system going forward,’ Zuckerberg will tell the Munich Security Conference on Friday.

‘We accept that may mean we have to pay more tax and pay it in different places.’

Finance ministers of OECD states have been holding talks for the last two months on the issue. A final deal is expected by the end of the year.

If the OECD can agree on a set of unified guidelines, that would spare individual governments from imposing their own digital tax.

Last month, the United States raised the prospect of starting a trade war with the UK if the British government goes ahead with plans to impose a tax on US tech giants.

Treasury Secretary Steven Mnuchin said President Trump will personally heap pressure on Prime Minister Boris Johnson to drop the proposed levy.

The British government, however, has insisted it will go ahead with the proposed 2 per cent levy. 

In 2018, Facebook turned a $2.1billion profit in the United Kingdom, but it paid just $36.5million in taxes, according to the Times of London.

Facebook has been accused by numerous governments of using complex legal schemes to avoid paying taxes

Facebook has claimed that it has paid all the tax that it legally owes. The company said that in 2018, it paid $3.8billion in corporate tax globally.

Savid Javid, who resigned as chancellor of the exchequer on Thursday, said last month the digital services tax will be introduced from April but will only be a temporary measure until an international agreement is in place on how to deal with big online companies like Google and Facebook.

Mnuchin was clear the White House remains ardently against the move as he hinted retaliatory tariffs could be imposed on the UK’s car industry if the tax is rolled out.

The US and France have announced a truce over President Emmanuel Macron’s plans to introduce a similar measure after Washington responded with a threat to slap punitive tariffs on products including French cheese and wine.

Javid said the tax – a two per cent levy on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users – will be introduced.

Speaking at the World Economic Forum in Davos, Switzerland, last month, the former chancellor said: ‘We plan to go ahead with our digital services tax in April.

‘It’s important – as we said at the time when we first introduced it to Parliament and legislated for it – it is a proportionate tax.

‘It is a tax that is deliberately designed as a temporary tax, it will fall away once there is an international solution.’

The UK has been urged to hold back on pressing ahead with the levy by the OECD, which called for time to allow the push for an international approach to succeed.

Asked whether a post-Brexit US-UK trade deal will be possible if Javid presses ahead with the tax, Mnuchin said ‘we will be having some private conversations about that’, adding: ‘I’m sure this will be worked out.’

Appearing alongside Javid on a panel at the Swiss ski resort, Mnuchin said: ‘I’m sure the president and Boris will be speaking on it as well, as the president did with Macron.’

He argued a digital tax is ‘discriminatory in nature’ and the US is participating in the OECD process to find a solution.

‘If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies,’ he warned.

A thumbs up symbol stands at the entrance to the Facebook Inc. European headquarters in Dublin, Ireland in a file photo. Facebook has used its physical location in low-tax jurisdictions like Ireland to claim lower taxable income, according to critics

The U.S. believes the tax is fundamentally unfair because most of the companies which it would apply to are based in North America.

But Javid said there has been a growing disconnect between where customers of online firms are based and where they are taxed.

‘This does require an international solution and that is something I think we all agree on,’ he said.

While there is not an international agreement yet, ‘this could be the year of change’, the former chancellor added.

The prospect of a trade war with the US is likely to spark major concerns in the UK’s manufacturing sector.

Trump has previously not hesitated in taking action against countries he believes are treating the US unfairly on trade.

A dispute with China now appears to be cooling but Trump is still displeased with US relations with the EU.

He said today he believed the bloc would agree to more favorable trading terms because if it did not then he would impose ‘very high tariffs’ on European products.

‘They are going to make a deal because they have to,’ he said. 

‘They have to. They have no choice.’     

Google says it won’t use ‘Double Irish, Dutch sandwich’ tax loophole 

Google parent Alphabet will no longer use an intellectual property licensing scheme, known as the ‘Double Irish, Dutch sandwich’, which allowed it to delay paying U.S. taxes, 2018 tax filings show.

A Google spokesman last month confirmed it would scrap the licensing structure, saying this was in line with international rules and followed changes to U.S. tax law in 2017.

Dutch filings, which were seen by Reuters, showed that in 2018 Google moved 21.8 billion euros ($24.5billion) through its Dutch holding company to Bermuda, up from 19.9 billion in 2017. 

Google said it would end the practice after 2019.

‘A date of termination of the Company’s licensing activities has not yet been confirmed by senior leadership, however management expects that this termination will take place as of 31 December 2019 or during 2020,’ the Dutch filing said. 

‘Consequently, the Company’s turnover and associated expense base generated from licensing activities will discontinue as of this date,’ the filing with the Dutch Chamber of Commerce added.

Google parent Alphabet will no longer use an intellectual property licensing scheme, known as the ‘Double Irish, Dutch sandwich’, which allowed it to delay paying U.S. taxes, 2018 tax filings show 

Google, like other multinationals that make use of international tax minimization strategies, has always said it pays all its taxes.

‘We’re now simplifying our corporate structure and will license our IP (intellectual property) from the US, not Bermuda,’ a spokesman said in a statement.

‘Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23%, with more than 80% of that tax due in the US.’

For more than a decade, Dutch, Irish and U.S. tax law allowed Google to enjoy an effective tax rate in the single digits on its non-U.S. profits, around a quarter the average tax rate in its overseas markets.

The subsidiary in the Netherlands was used to shift revenue from royalties earned outside the United States to Google Ireland Holdings, an affiliate based in Bermuda, where companies pay no income tax.

The tax strategy was legal and allowed Google to avoid triggering U.S. income taxes or European withholding taxes on the funds, which represent the bulk of its overseas profits.

Under pressure from the European Union and the United States, Ireland in 2014 decided to phase out the arrangement, ending Google’s Irish tax advantages in 2020.

The Trump administration’s Tax Cuts and Jobs Act, which came into effect in January 2018, ended the reason for U.S. companies to hoard foreign profits offshore. Now profits that have been made and taxed abroad are not subject to taxation when returned to the U.S.

In the Bermuda filing for 2018, Bermuda-based ‘Google Ireland Holdings Unlimited Co.’ said in the future it would no longer continue licensing intellectual property or holding debt securities, but it would continue equity investment operations. 

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