Facebook’s taxes would be more use than Zuckerberg’s philanthropy

It is one of the many paradoxes of the modern life that we are supposed to fete Mark Zuckerberg for giving his fortune to charity whilst lambasting his company Facebook for avoiding tax.

These things are of course two sides of the same coin and neither is particularly healthy for what you might broadly term society.

Facebook is not the worst offender when it comes to corporate tax avoidance.

It actually pays a higher rate of tax than the US corporate tax rate of 35 per cent but as it is keen to point out to investors, the rate is falling each year and is only high because of a number of one-off factors, such as generous share awards to its executives.

The pertinent question is what would Facebook's tax rate have been had it not availed of the advantages of basing its international operations in Ireland, one of the two countries in which it pays material amounts of tax.

Facebook may not seem to be as bad as many of its peers, but it would be wrong to think that its tax planning is not cut from the same cloth: pay as little as legally possible.

It is reasonable to assume this because Facebook is listed on the New York stock exchange and US investors have pumped billions into its shares.

They expect nothing less than “aggressive tax planning”.

This was the argument advanced by Tim Cook, the Apple boss when he testified before Congress about the extraordinarily low level of tax it pays.

His duty was to maximise the wealth of his shareholders and that effectively obliged him to use any legal means at his disposal to cut the tax bill.

In the case of Facebook, the big shareholder is Zuckerberg and one of the reasons his stake is worth €42 billion is that in line with best corporate practice it pays as little tax as possible.

Sociopathic approach

For some at least, this sociopathic approach to paying corporate tax takes the gloss off his announcement this week that he is to give away 99 per cent of his shares over his lifetime.

The argument goes that at least some of this money is in effect revenue that should have gone to the governments of the various countries in which Facebook makes its profits. And those governments should get to spend it in line with whatever mandate they were given by their electorates.

If a government has been elected on a platform that wants to see more schools built in their country, why should they be funding – via taxes forgone – Zuckerberg’s perfectly laudable desire to “advance human potential and promote equality for all children in the next generation”.

Cult of uber philanthropy

The breakdown in this rather fundamental organising principle of democratic societies – that governments rather than rich people redistribute wealth in the wider interest – is the unpalatable leitmotif of the cult of uber philanthropy of which Zuckerberg is the latest proponent.

It is no surprise that the first people in the queue to congratulate Zuckerberg were fellow mega philanthropists such as Bill Gates and Warren Buffett.

Not only is this model rather hard to justify on moral grounds, it is also ultimately a dead end.

Zuckerberg received at least some of his education at a public high school in Ardsley New York.

US public high schools are funded by local, state and federal governments.

Often a local property tax is the main source of funds.

Imagine that the wealthy citizens of Ardsley in the 1990s had been able to donate what they wanted to whatever school they wanted rather than pay property tax.

No Harvard dorm room for Zuckerberg and no Facebook?

In truth Zuckerberg is so preternaturally bright that he would probably have got on fine. But if you bring the argument closer to home, it’s more compelling.

One of the reasons Facebook is in Ireland is the educated workforce, and in Ireland the taxpayer pays all or part of the cost of every child’s secondary education.

No taxes, no educated workers.

Ireland is unusual in that there is quite a sophisticated general understanding of the trade-off between our low corporate tax rate and job creation. Hence we get much less agitated over these things than our European and some American counterparts.

But just because we understand what is going on there is no need to get too excited about Zuckerberg giving our money away for us.