Social
media leader Facebook has set up a complex structure of foreign subsidiaries,
stretching from Amsterdam and Ireland to the Cayman Islands in the Caribbean in
order to avoid paying millions in tax to the US.
Dutch
freesheet De Pers reports on Friday that Facebook’s Amsterdam office bears all
the hallmarks of an unused space – no one actually works there, the paper
claims.
In its
attempt to slash its tax burden, Facebook is apparently using a permissible
accounting known as transfer pricing, where multi-national companies channel
profits to low-tax jurisdictions while incurring costs where taxes are high.
Low tax
rates
The
Netherlands and Ireland afford favourable climates for this kind of practice.
The Netherlands has signed numerous global treaties which legitimise the flow
of interest, royalty and dividend funds into the country for a low or even
negligible tax rate. Through a tax treaty with the US, the money can then be
transferred to the US.
Ireland,
with a current 12.5 per cent corporation tax rate, is attractive for companies
with overseas intellectual property income. Most of Facebook's revenue
generated through advertising companies across Europe is paid to the Dublin
office. In this way, Facebook minimises its tax bills in its big overseas
markets such as Britain.
Mark
Zuckerberg, who founded the site in Harvard eight years ago, claims making
money was never his primary objective. Facebook is preparing for its stock
market debut with a value as high as 100 billion US dollars being estimated.
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