DUBLIN: Facebook is to overhaul its tax structure so that it pays tax in the country where profits are earned, instead of using an Irish subsidiary. The online advertising giant is to make the change in every country outside the US where it has an office. In 2016, Facebook said it would stop routing UK sales through Ireland for tax purposes.
The change comes after pressure on large firms over their tax affairs from governments and the public.
Facebook chief financial officer Dave Wehner said: “We believe that moving to a local selling structure will provide more transparency to governments and policy makers around the world who have called for greater visibility over the revenue associated with locally-supported sales in their countries.”
The move will affect how Facebook pays taxes in 30 countries including Germany, France, Spain, Italy, the Netherlands, Belgium, Norway, Poland, and Sweden.
In the UK, there was public outrage after it emerged that Facebook had paid just £4,327 in tax in 2014.
In April 2016, the company began booking more advertising income through its UK office, instead of Ireland.
That significantly boosted revenue and profits for its UK business, and has meant that so far it has paid higher taxes.
Facebook paid £5.1m in tax in the UK last year, up from £4.2m in 2015, on revenues of £842m.
However, that does not necessarily mean it will start paying more tax in other countries as a result of the overhaul, Professor Prem Sikka of the universities of Sheffield and Essex told the BBC.
Taxes are paid on profits, and “the huge difficulty with large companies is trying to determine exactly what the profit is,” he said.
There are a number of ways firms can muddy the waters, including charging intra-group management fees, royalty fees, and profit-sharing, he said.
Professor Sikka added that the Facebook move “may well be appeasing public opinion, while at the same time it takes a very small hit on its profits, if any.”
EU authorities are pursuing big technology companies over what they see as avoidance of tax by routing business through lower tax jurisdictions.
In 2015, the UK government introduced a “diverted profits” tax, a higher rate of corporation tax aimed at companies that move profits out of the country.
