The Swedish Tax Agency has denied desired tax deductions to social media giant Facebook, hitting it with a substantial bill instead.
Combined with a hike in the value added tax collected from Facebook, the total bill came to SEK 1.9 million ($227,000), the news outlet Resumé reported.
During the current year, the Swedish Tax Agency requested information from the company in order to substantiate and back up the deductions made during 2016 and 2017, but never received any documentation from Facebook, which prompted its negative decision. Another part of the bill consisted of tax fines.
Since opening a data center in Luleå, northernmost Sweden in 2013, Facebook has become a major employer in the country, generating hundreds of jobs in Luleå alone.
The Swedish government itself welcomed the deal on the Luleå server hall as “strategically important.” Even Facebook founder Mark Zuckerberg called sub-Arctic Luleå an “optimal place” due to its frigid climate. In subsequent years, Facebook has collected a substantial SEK 139 million ($16.5 million) in grants from the Swedish state in the hopes that it would promote the region in particular and Sweden as a whole.
However, despite the lavish government support and the goodwill of local entrepreneurs, Facebook was recently discovered to have utilized a clever tax-dodging scheme dubbed “Double Irish” to “optimize” its profits, while making the most of Sweden’s advertising market.
Facebook’s advertising revenues were discovered to land in Ireland via various subsidiaries, where the company effectively sidesteps taxation through a loophole. From there, royalties are paid to another sister company registered in the Cayman Islands, where no taxation is applied either.
According to a previous estimate by Tobias Lindberg, chief analyst of the media trade organization Newspaper Publishers, Facebook lifted at least SEK 1 billion ($120 million) from the Swedish advertising market in 2016 alone, without paying a single krona in taxes. Although not illegal per se, this “advanced tax planning” caused anger in Sweden, which serves as a milch cow for web giants like Google and Facebook, which are exempt from taxation where their main profits arise. Tobias Lindberg called this scheme “immoral.”
Approximately half of Sweden’s population of 10 million people have Facebook accounts.