(MENAFN- The Conversation) Mark Zuckerberg is the philanthrocapitalist poster boy, pledging to give away virtally all his wealth during his lifetime – but tax reform should trump the Facebook chief's charitable ways because his company makes money by selling its user base data to advertisers.
The UK government recently taxing social media companies' revenues by reference to the size of their national user base. The plan is to stop the likes of Facebook making artificially low profits by paying large royalties to subsidiaries. The treasury said:
According to the latest figures, to Facebook in Britain. It's likely, then, that the treasury's plan would increase Facebook's tax liability. It currently corporation tax. In 2016, it reported sales of £842.4m, pre-tax profit of £58.4m and paid £5.1m in corporate tax.
The less tax Facebook pays, the more wealth it can distribute to its shareholders – the largest of which is its co-founder and CEO, . But Zuckerberg does something surprising with this untaxed money: although he undoubtedly enjoys an extraordinary standard of living, he also gives much wealth away to good causes.
Philanthrocapitalism
Because the wealthy are to donate, not everyone objects to large and minimally taxed profit. A new movement of has emerged, with the argument that the super-rich are well placed to meet worldwide social needs. This is because they are made up of skilled entrepreneurs, who have already proven their metal.
Through the , which Zuckerberg runs alongside his wife Priscilla Chan, he has committed to give away 99% of his fortune over the course of his life. There is no question that it supports worthwhile causes. It has spent money to curb mass incarceration in the US, invests in research to cure diseases and, among other things, provides free eyesight examinations.
But philanthrocapitalism is problematic when understood as a widespread alternative to old-fashioned tax-and-spend. Some wealthy people choose not to give to charity. famously had no philanthropic public record, despite having amassed a personal fortune of $8.3 billion.
Philanthrocapitalism is also undemocratic. Governments, when spending public money, are to electorates. If a state pays for a social service, the decision flows from a deliberative process in which everyone has a stake.
When Zuckerberg spent $100m on public schools in New Jersey, he was able to stamp his preferences upon the nature of the project – a scheme criticised for widespread .
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There is also a problem particular to Facebook's strategy. Low business taxes are sometimes tolerated by electorates if they are seen to support high-employment industries. Manufacturers might be given in the hope that they will generate work.
But Facebook . In contrast to traditional industries, such as steel manufacturing or coal mining, its wealth is created without a large labour force. With fewer wage packets to pay, Facebook's advertising-based business pumps most of the money straight up to the top.
Facebook UK has routinely minimised its tax liability. Until last year, it routed all advertising sales through , which has lower corporation tax than Britain. Yet even the Irish branch doesn't pay very much, as it is understood that its wealth is transferred out of the country in . Facebook UK also pays its employees in , which – if they appreciate in value – can be from the corporation tax bill.
But Zuckerberg is unlikely to arrange Facebook's affairs to maximise tax. It's inevitable that he prefers control over the company's wealth – even if he chooses to spend the large surplus on good causes.
The UK government's proposals are welcome – because Facebook makes most of its money from advertising, has the potential to target the real source of the company's value: your data.
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