How Facebook Reported A 2012 Pre-Tax Loss Of €626K In Ireland Despite Gross Profits Of €1.79B

ConfusedBusinessman650Facebook Ireland turned a gross profit of €1.79 billion ($2.45 billion) in 2012, but it reported a pre-tax loss of €626,000 ($857,243). This may sound sketchy, but the company was fully compliant with the law. Financial Times explained how this happened.

According to FT, Facebook Ireland paid Facebook Holdings — its parent company, which is also based in Ireland — €1.75billion ($2.4 billion) in administrative expenses for the use of intellectual property for its technology platform.

Facebook Ireland handles all of the social network’s ad sales in Europe.

Facebook has faced scrutiny in the past over taxes, as it paid none in the U.K. in 2012, while receiving $429 million in net tax refunds in the U.S. for that same year, and the company only paid £195,890 ($320,166) in the U.K. in 2011.

However, Facebook is not running afoul of the law — the company is merely exploiting existing loopholes in European tax law. As Tim Worstall wrote for Forbes:

You can get as riled up as you like about it. Myself, I would note that in the European context, this is an inevitable result of the single market. Companies, free to base themselves anywhere at all within the European Union and then sell to all of it, will inevitably base themselves where they can pay the least tax, other things being equal. I would also note that this actually increases any possible U.S. corporate income tax bill. If Facebook takes the money back into the U.S., then it will pay that U.S. corporate income tax minus any foreign taxes paid. If it’s not paying any foreign taxes, then the bill from Uncle Sam rises, not falls.

Readers: What are your thoughts?

Image courtesy of Shutterstock.

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