Facebook to pay significantly more in UK tax

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4 Mar, 2016

Social network giant making tax changes to be “more transparent”

Facebook is to pay millions more in UK tax following changes to its tax structure.

The world’s biggest social network has been under criticism for paying low tax rates, despite the UK being one of its most significant markets outside of the US.

Facebook will not longer divert sales through its Ireland division for its largest advertisers, according to an internal memo.

Companies such as Sainsbury’s, Tesco, healthcare goods manufacturer Unilever and advertising group WPP will all be handled by its UK division.

By booking advertising through its UK division, its is believed Facebook will account for substantially more revenue, and will pay a higher level of corporation tax – at least 20 per cent on profits in the UK – as a result.

The changes are due to take place from 1 April, and the social networks first inflated tax bill will be at the start of the 2017 fiscal year.

A Facebook spokesman provided the following statement – which matches that of the internal update – to IT Pro: “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 new structure is easier to understand and clearly recognises the value our UK organisation adds to our sales through our highly skilled and growing UK sales team.”

The company has been under mounting pressure to pay taxes that are more in line with the large profits it earns. There was widespread outrage when it was revealed that Facebook paid just £4,327 in corporation tax in the UK in 2014 – less than the average British taxpayer who pays approximately £5,500 in tax.

Facebook is believed to have been planning to make this change for some time.

This change is said to be about making Facebook more transparent following changes to UK tax law – more notably the government’s newly introduced diverted profits tax, set at 25 per cent, and specifically targeted at companies using loopholes to move profits out of the country.

However, it will not be paying back taxes on the profits it has already made. And smaller businesses booking online advertising will reportedly still be invoiced by Facebook Ireland – the company’s international base of operations, which currently houses almost one thousand employees

The social networking giant, which has over one billion global users, and an estimated 30 million in the UK, made $17.93 billion in 2015.

How much of that revenue came from its UK operations is unknown. But its UK business is one of its largest operations outside of its home nation, as evidenced by the fact it now employs around 850 staff at its UK offices. It is currently building a new London HQ to house a range of staff, which will likely include its current UK sales and engineering teams.

Google has also been under fire for its UK tax. Earlier this year the UK government coaxed the search giant into paying £130 million in tax.