Leonid Bershidsky.
Facebook had a huge boost in sales last year, but make no mistake, it had a terrible year. Despite its financial performance, the social media giant is facing a reckoning in 2018 as authorities close in on several fronts.
The main issue cuts to the core of the company itself: Rather than ‘‘building global community’’, as founder Mark Zuckerberg sees Facebook’s mission, it is ‘‘ripping apart the social fabric’’.
Those are the words of Chamath Palihapitiya, the company’s former vice president of user growth. He doesn’t allow his kids to use Facebook because he doesn’t want them to become slaves to ‘‘short-term, dopaminedriven feedback loops’’.
Palihapitya’s criticism echoes that of Facebook’s first president, Sean Parker: ‘‘It literally changes your relationship with society, with each other... God only knows what it’s doing to our children’s brains.’’
To outsiders and authorities, Facebook looks like a dangerous provider of instant gratification in a space suddenly vital to the health of society.
It’s also making abuse and aggression too easy, the UK Committee on Standards in Public Life pointed out in a report last year.
Sounding one of the loudest alarm bells on social media yet, the panel urged the British prime minister to back legislation to ‘‘shift the balance of liability for illegal content to the social media companies’’.
While Facebook remains the biggest platform, Google and Twitter are facing similar pressure from governments.
Germany enacted a law requiring the social networks to remove hate speech promptly or face fines.
In the US, the activities of a Russian troll farm during the 2016 election campaign prompted scrutiny of Facebook’s ad selling practices and a (rather hamhanded) legislative attempt to force some transparency.
Taxation is another area that authorities, especially in Europe, are targeting.
Facebook, like Google, books almost all its non-US revenue in Ireland with its low corporate tax rate and pays most of it to a tax haven for the use of intellectual property rights. The practice resulted in a 10.1 per cent effective tax rate for Facebook in the third quarter of 2017.
This year, the top European economies, led by France, Germany, Italy and Spain, called for a turnover tax on the US tech companies to compensate for their tax avoidance.
This angry move failed to get enough traction on the European Union level thanks to Ireland and other nations that fear the economic fallout. But individual nations are taking action – Italy’s ruling party backed a plan to withhold 6 per cent of any digital advertising purchase in the country.
Late last year, Facebook announced that it will start booking revenue from large ad sales in the countries they occur, not Ireland.
But when Facebook and Google tested this approach in the UK, it didn’t result in a significantly higher tax bill, according to Irish economist Seamus Coffey.
Regardless of where the company books sales, it still has to pay for the intellectual property rights held far from European shores, likely in the Cayman Islands. Coffey doubts that the new scheme will significantly change Facebook’s overall tax bill. Instead, it will create insultingly small revenue streams to more countries.
Facebook is also trying to preempt concerns about problematic advertising and offensive content by hiring 1000 reviewers.
But even if Facebook hired in