Facebook will changed the way it will pay tax in the U.K., resulting in millions more being paid by the social network after it was heavily criticized for funneling profits through Ireland where the corporation tax is much lower.
Following an initial report by the BBC, Facebook has now comfirmed that profits from the majority of Facebook’s advertising revenue initiated in Britain will now be taxed in the UK. The U.K. is one of Facebook’s biggest markets but the social network came in for huge criticism when it was revealed that the company paid just 4,327 pounds ($6,115) in taxes in 2014 in the U.K.
International Business Times understands Facebook has already begun informing its biggest customers about the move and the change has been in place for some time, meaning it is not a reaction to Google's recent tax settlement with the U.K. government. The change is also not related to any back taxes though the BBC reports sources saying Her Majesty’s Revenue and Customs (HMRC) may be investigating the company's tax structure.
While the U.K. is a major market for Facebook, the company does not have to reveal how much revenue it generates there until it becomes 10 percent of its global business, something Google has had to do already. This means it is impossible to accurately ascertain how much extra tax Facebook will need to pay under its new structure, though it is expected to be in the millions.
According to figures from eMarketer, Facebook in 2015 recorded almost $1.2 billion in revenue in the U.K. a figure predicted to rise to almost $1.5 billion in 2016.
The change will only impact bigger advertisers as these are typically the ones that require U.K.-based sales staff to book the campaigns. Profits generated from ad campaigns booked by smaller businesses online through Facebook’s automated system will still be funneled through Facebook’s European headquarters in Ireland, which has a corporation tax rate of 12 percent, compared to the 20 percent rate in the U.K.
The changes will take effect from April (the beginning of the tax year in the U.K.) and Facebook’s first higher tax bill will be paid in 2017. Facebook’s statement says:
“On Monday, we will start notifying large UK customers that from the start of April, they will receive invoices from Facebook UK and not Facebook Ireland. What this means in practice is that UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook UK will then record the revenue from these sales. In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook’s operations in the UK.”
The statement adds: “The new structure is easier to understand and clearly recognizes the value our UK organization adds to our sales through our highly skilled and growing UK sales team.”
Facebook, along with Google and Amazon, has come in for huge criticism from U.K. politicians in recent years as they have sought to take advantage of a complex series of international tax loopholes. Google recently settled a decade-old tax bill with the U.K. government but was still widely derided for paying so little tax there.
Last year, the U.K. government introduced the diverted profits tax — widely known as the Google Tax — which was set at 25 percent and aimed at punishing companies using convoluted structures to avoid paying tax on their profits in the U.K. where corporation tax is higher than in other countries.