Twitter's Tiny U.K. Profits Raise Eyebrows

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How did social media giant Twitter manage to make after-tax profits of only £92,408 ($138,073) in Britain last year?

It's the latest log on the fire of British media speculation that major U.S. technology firms, including Google and Amazon, are abusing loopholes to limit their tax liability on what often are very successful local operations.

Last year Twitter's U.K. operation attracted attention by twice missing deadlines to file with Companies House, an entity that by British law is allowed to collect and make public the business performance details of any company, even private ones like Twitter. Companies House is allowed, however, to set the criteria that require companies to report, such as fewer than 50 employees.

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Twitter became obliged to report after it purchased British Twitter add-on Tweetdeck for $50 million in 2011. According to Companies House, Twitter's retained profits -- money left after paying taxes and shareholder dividends -- were £92,408 for the 2012 fiscal year, up from just £16,500 ($24,700) for 2011. Twitter has not disclosed any tax information yet for 2013.

The low tax figures don't seem to jibe with Twitter's wild success: It's on course, for instance, for an estimated $10 billion (£6.7 billion) U.S. initial public offering this year.

The Guardian last week suggested that Twitter is using similar structuring conventions as other American companies and moving money around between its British and Dublin, Ireland-based operations to maximize its tax efficiency -- or deprive the local economy of a fair return, depending on your point of view. Twitter's British operation is owned by Twitter International, which is based in Ireland.

Twitter refused to confirm for the newspaper that U.K. sales are routed through Ireland. The company said its Dublin office employed 100 people compared to 60 at its London offices, while leadership seems to be divided between the two sites: its heads of policy and mid-market sales, and EMEA legal and finance managers operate out of Dublin, while its U.K. directors of sales and partnerships plus the country's general manager work in the London office, as well as some software engineers and managers acquired via the Tweetdeck deal.

"Since Twitter U.K. opened in 2011 we have been steadily building our team, focusing on promoting great uses of Twitter by all elements of U.K. society – the arts, sport, government, and brand partners," said a Twitter spokesperson in London.

In January, research firm eMarketer estimated Twitter earned $288 million in global advertising revenues, a figure that was projected to rise to $545 million this year and $807 million by 2014. It said the U.S. accounts for just 20% of Twitter's estimated 200 million active users, suggesting the firm relies heavily on overseas business.