LONDON: Snapchat owner Snap Inc. is making London its European headquarters and eschewing the controversial maneuvers many tech companies have used, especially in Europe, to lower taxes.
As Snap, based in Venice, Calif., gears up for an IPO in the U.S. that could value the startup at as much as $25 billion, the tax strategy could boost investor transparency—while potentially avoiding any distracting criticism or scrutiny of its overseas tax arrangements.
Such tax arrangements have attracted intense scrutiny in recent years, triggering an international effort to close loopholes as well as probes into whether firms, including Apple Inc., have been unfairly paying too little tax.
Targeted companies have said they pay their fair share, but many have moved recently to overhaul their tax practices in the wake of these reviews. Still, few have gone so far as Snap in promising to keep its overseas tax arrangements tidy, something tax lawyers said could be a sign of how other companies could restructure.
“Creating a structure to pay no tax is increasingly difficult,” said Heather Self, a tax partner at Pinsent Masons LLP in London. “Large groups are starting to look for where can they have a structure that pays a reasonable amount of tax, and is less likely to be challenged.”
Snap said it will immediately start collecting all international revenue through its business in the U.K. A spokeswoman said the company will then shift soon to collecting revenue from foreign clients at local branches, and pay local taxes.
For clients in countries with no local Snap branches, the company will continue to book revenue in Britain.
That breaks from the practice at many other tech firms, including Google parent Alphabet Inc. and Facebook Inc. The decision to establish a cleaner structure also is a lot easier for Snap than for other tech firms, which have set up shop around the world well before all the new scrutiny of the various tax strategies. Some avenues pursued by others, meanwhile, simply are no longer an option.
