BUSINESS
12/28/2012 02:46 pm ET | Updated Apr 22, 2013

Facebook Pays Less Than 1 Percent In Foreign Taxes On $1.4 Billion Profit

Social media giant Facebook is the latest American corporation to use its offshore entities as a way to dodge the taxman, paying only a 0.3 percent tax rate on more than a billion dollars in foreign profits.

In 2011, Facebook Ireland paid just $4.7 million in taxes on its entire non-U.S. profits of $1.4 billion. Foreign revenue accounted for more than 40 percent of the company’s total profits of $3.2 billion that year, according to figures reported in the Guardian. (Note: Figures are based on conversion rates for British pounds to US dollars on Dec. 28.)

A spokeswoman for Facebook responded to The Huffington Post's request for comment and said, "Facebook complies with all relevant corporate regulations including those related to filing company reports and taxation."

Facebook was able to slash its tax rate by using an accounting maneuver known as the "Double Irish." The company is structured so that advertising companies that bought space on any of Facebook's non-U.S. sites in 2011 paid Facebook Ireland. The Irish headquarters then moved that royalty income to other subsidiaries, such as entities in the Cayman Islands, and posted a $24 million loss in the European office -- thus avoiding a hefty tax bill, the Guardian reported.

Facebook is not alone in using this accounting trick. Google and Apple have also used their Irish subsidiaries to lower their tax load. Google has saved billions in taxes by shifting its profits through Ireland and the Netherlands to Bermuda. In 2011, the search engine company paid a tax rate of just 3.2 percent on the profit it earned overseas, Bloomberg reported.

According to an investigation by The New York Times earlier this year, Apple has been a pioneer of this maneuver, which is alternatively called the “Double Irish With a Dutch Sandwich." The technology company paid a low global income tax rate of just 9.8 percent in 2011 with the help of offshore shell companies.

Facebook's low tax rates could stoke anger on both sides of the pond about how little U.S. companies are paying in European taxes. The United Kingdom would like to see more tax money from companies that make hundreds of millions of pounds in the country. Meanwhile, the U.S. government loses billions in tax dollars from American companies using offshore headquarters to shelter profits.

In a statement to HuffPost, Facebook has defended its decision to place its international headquarters in Ireland. "We have our international headquarters in Ireland that employs over 400 people, and a series of smaller local offices providing support services all over Europe," a Facebook spokeswoman said. "Dublin was selected as the best location to hire staff with the right skills to run a multilingual high-tech operation serving the whole of Europe."

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