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How rewarding employees enables Facebook to save on taxes

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It turns out Facebook, CEO, Mark Zuckerberg is not only a tech genius, he is also a very talented tax auditor.

The Silicon Valley giant paid only 4% tax on the billions of dollars in profits it generated from users in Britain and other overseas markets last year.

It handed £86 million to foreign tax authorities after racking up profits of £2.37 billion outside the United States, The Sunday Time reports.

The key to paying so little tax was rewarding its employees with generous bonuses.

It is not the first time Facebook had pulled off creative ways to avoid tax.

In 2014, the sales arm in Britain earned revenues of £105 million and would have posted profits of £7 million, but it paid out share-based bonuses to staff totalling £35.4 million, which left it nursing a loss of £28.5 million and with a tax bill of just £4,327.

The figure is even less than the average tax and national insurance bill of the average UK worker. Employees earning an average UK salary of £26,500 pay a total of £5,393 in income tax.

While employees are enjoying huge bonuses, some pointed out that it would likely result in more tax being paid by staff as the company would effectively be shifting the tax liability to its staff.

The generous bonus allowed its 326 staff to receive an average of £96,000 worth of shares, taking the median wage for employees to be £210,000.

ALSO READ: Facebook’s HR head reveals why staff (really) love working for it

Given the size of the bonuses, workers would most likely have paid at least 40% tax and in some cases 45% income tax, while the ceiling for corporation tax in the UK is set at 20%

If Facebook was to withhold the £35.4 million bonus in shares it awarded staff in 2014, it would pay £56 million in corporate tax.

The figure is much lower than the £126 million in tax that the 300 plus staff handed over to the UK government by paying 45% of their salary as income tax.

Over the next three years, the company is planning to pay out some £280 million in share bonuses to staff, further reducing the amount of net profit on which it would have to pay corporation tax.

The big issue is whether the company is being truly transparent about the issue, said Crawford Spence, a professor of accounting at Warwick Business School.

“The continuing lack of transparency over Facebook’s actual UK revenues makes it difficult to know whether these changes will [result] in them paying a ‘fair share’ of tax,” he told The Sunday Times.

A spokesperson for Facebook told the Guardian: “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”. She added that all the firm’s employees paid UK income tax on their payouts.

Image: Shutterstock

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