Friday, 16 October 2015

a taxing calculation


I finally got around to looking at those Facebook annual accounts for the UK.

I say UK, although I notice from their Companies House Annual Return that they are set up with an Irish Director based in Dublin, which presumably helps give some taxation efficiencies.

The rest of the Directors are all based in California, so the 362 person UK business comprising 34 admin, 195 technical and 133 sales is directed remotely, at least according to the AR01.

Ernst and Young prepared the accounts in line with UK GAAP, and say that everything is tickety-boo. Facebook turned over about £105m in the UK in 2014, compared with £49m in the previous year.

With double the turnover of the prior year, they managed to make slightly more than double the loss of the previous year, 'worsening' the loss from £11m to last year's £28m. That also shows as a lower performance, making 126% loss this year vs 122% loss the prior year.

Of course, to the untrained eye, this could all look like some sort of fiddle of the books to dodge tax. But the big accountancy firms say not. This is all legitimate and above board. It's mainly the staff costs where the potential profit went. In addition to the £40.8m salaries, there's another share based payment charge of £35.4m. This apparent worsening of ultimate performance appears to be richly rewarded.

A few quick sums to get a sense of proportion. The average salary cost of one of the 362 UK Facebook employees works out at £112k, plus their payment of £24k National Insurance. That's £137k. Now add on the 2014 bonus averaged at £97.7k and the salary drifts towards £235k averaged across all employees.

I know, it's not that simple. Some people get paid less, and others get paid more. There is probably a distribution curve for performance too (XESIL), so that some people can get double bonuses and others get none. My quick bell-curve calculation shows a total reward range from £115k (mainly admin) to £336k for the bulk of the staff.

So do the staff actually get their hands on the bonus shares money? I can't be certain, but it looks as if they can't for four years.

What everyone appears to get are paper shares (RSUs) with a minimum 4 year vesting period.

So Facebook kind of wins twice, it has written its profits away, removed the Corporation Tax charge and only has to give the RSU certificates to its staff, until the end of another four years.

Oh well, I suppose it did have to pay £4,327 of Corporation Tax (usually rated at 20%-21% of profit) on its turnover of £104m. I wonder if it still has that Cayman Islands account where it was squirrelling advertising revenues?

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