Things are good for Facebook it seems. On $1.3 billion in profits generated by Facebook outside of the United States, they only had to pay $4.6 million, according to reports in the Guardian newspaper. And Facebook is not the only firm to do so either.
To do this, these firms have turned to the well-known tax avoidance scheme known as the “Double Irish.” Addicting Info covered this particular scheme and how it worked in an earlier article, but the basics are relatively straight forward: the firm sets up one office in Ireland and another in the Cayman Islands, appearing to US tax officials to be a single entity, but being separate entities to the governments of both countries. This allows these firms to avoid millions, if not billions, in profits by exploiting loopholes. A modification of this tax scheme, the “Double Dutch” is detailed in this graphic from the New York Times below:
As Facebook is not a manufacturer, the second Irish subsidy and the subsidy in the Netherlands can be disposed of.
The result of these tax schemes is that governments lack the revenue to properly support the economies needed for these businesses to function. Without revenue, governments are forced to cut services. These services enable these businesses to operate. There is a reason why governments like Ireland, the United Kingdom, Greece and Spain are in such financial dire straights, they have a serious issue of tax avoidance.
Companies have over the years been required to focus upon profit above all else, failing to be good corporate citizens. This means such tax avoidance schemes and full on tax scams will continue to be a problem. Corporations now pay more in political donations than taxes, and the Republican Party seems intent to continue this trend.
Facebook is not being a good corporate citizen, not just in this area but also in areas such as privacy rights and freedom of speech. The corporation, all corporations, are threatening to collapse the entire system needed for them to even exist through this misbehaving. This does not secure their shareholder value. This does not maximize profits. It turns a corporation into a pyramid scheme, a game of pass the bag. Whomever holds the bag when the house of cards collapses will lose everything, just as what happened with the housing market, with the internet bubble, with all such schemes. The tax avoidance schemes employed by companies such as Facebook are a symptom of a greater problem with the system as a whole. Nobody can call themselves a fiscal conservative so long as they support such businesses, because these businesses are fiscally irresponsible and damaging to not only their shareholders value, but to the world economy itself.
Nathaniel Downes is the son of a former state representative of New Hampshire, now living in Seattle Washington.
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