PayPal and Facebook pay more tax, but will investing in them ever pay dividends?

Both Facebook and PayPal are paying significantly more tax in the UK. Some say that their respective tax bills remain way too low. But do these companies make good investment propositions?

Article updated: 9 October 2018 7:00am Author: Michael Baxter

Facebook’s tax bill for the 2017 financial year has sort of trebled, rising to £15.8 million. I say ‘sort of’ because it then reduced the bill to £7.4 million after a share programme for UK employees.

PayPal’s tax has gone up from €181,000 in 2016 to €4.7 million in 2017. The increase in the bill followed an HM Revenue and Customs investigation.

Then again, Facebook’s UK revenue was £1.2 billion in 2017, so the tax bill still seems rather paltry. Facebook says that UK profits were just £62 million. It’s odd though, the company’s global revenue in that year was $41 billion, and net income was $16 billion. So globally, revenue to profits is less than 3:1. In the UK the ratio was more like 20:1.

So that’s strange.

The company now says it counts UK advertising as part of its UK profits which is handy because UK chancellor, Phillip Hammond, has talked about a digital services tax. The EU may get even tougher. It has been looking at imposing a temporary three per cent tax on digital ad revenue, selling data and intermediation services connecting buyers and sellers.

Finally, there is Amazon that has turned all nice and cuddly after agreeing to increase the minimum wage it pays workers to a level greatly in excess of legislated minimum wages in the UK and US.


Of course, the trouble with taxing Amazon is that the company makes modest profits relative to revenue. Retailers cry foul, say it’s unfair that Amazon dominates retail without the same imperative to make a profit. Whilst I do indeed worry about the level of power Amazon has acquired, this particular criticism is unfair. The reason why Amazon can get away with such low profits to turnover is that investors like its business model and can see the long term potential.

Natural monopolies

The big snag with digital tech is that it creates natural monopolies. A handful of companies have become enormously powerful, they disrupt multiple industries and because of the inherently global way digital tech can travel, they are difficult for tax regimes to pin down.


But data is where the big value creation is occurring and in this respect I have a doubt concerning the resilience of some of the techs, in the long run.

You may recall, I went all bullish on Facebook six months after it was floated after I became aware of just how cost effective an advertising platform it was becoming.

But a new battle is being fought. There is a growing view that individuals — that’s people like you and me — should own our data, and the revenue that accrues from this data should go to us, not the techs.

GDPR is part of this new way of thinking.

It seems to me that we are set to go in one of two ways — either we head to a kind of 1984 world, but one in which both companies and the state act as Big Brother, or we hand ownership of data to individuals and the value of data is transferred to us.


If we go down the latter route, some techs, Facebook in particular, may have problems.

Facebook’s problems are exacerbated by the way it is fast going out of fashion with millennials and Generation Z. The jury is out on whether Instagram or WhatsApp can take over from Facebook as drivers of revenue in the longer term.

I still believe Facebook’s best prospects, long-term, lie with Oculus Rift and creating communities in virtual reality.


PayPal is different, ever since it was spun out of eBay in 2014, shares have merely done okay. They did rise two-fold but are now down by a third this year.

With Fintech start-ups innovating all over the place and with the potential of blockchain currencies, in some respects it surprises me that PayPal is still around.

It’s USP relates to security. With the various hacks we keep hearing about, the fear that our bank account details may fall into the wrong hands is growing. At least with PayPal you can limit potential damage from your details being breached. It may yet come back into vogue.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

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Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.