Facebook to make sweeping changes to how it pays tax

The changes receive a cautious welcome from the EU

In a bid to appease governments and regulators, Facebook no longer plans to send its international advertising revenue to its headquarters in Ireland, instead paying taxes for the countries in which it operates.

The social media giant will use a "local selling structure" in countries where it has an office to support sales to local advertisers.

"[This] 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," wrote Dave Wehner, Facebook's CFO.

Facebook expects to make the change in countries where it has a local office, although Wehner added that "each country is unique".

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"This is a large undertaking that will require significant resources to implement around the world," added Wehner. "We will roll out new systems and invoicing as quickly as possible to ensure a seamless transition to our new structure. We plan to implement this change throughout 2018, with the goal of completing all offices by the first half of 2019."

A European Commission spokesperson told IT Pro: "We note with interest Facebook's announcement. While we welcome any initiative that brings declared tax revenue closer to where value is created, we would need to look carefully at the details before we can comment specifically on this case.

"However, what is certain is that our taxation agenda is having a real impact. The Commission will continue its work in 2018, notably with proposals to ensure a fair and effective taxation of the digital economy."

The move comes after the European Commission forced Ireland to start collecting 13 billion in unpaid taxes from Apple earlier this month, a year after it originally ordered the government to do so. Ireland has now opened an account for Apple to deposit the money in, though both it and Apple have appeals against the decision.

The EC found that Ireland handed Apple tax benefits that amounted to illegal state aid for 24 years, allowing the tech giant to pay an effective corporate tax rate of 0.005% in 2014.

The Irish Department of Finance said it would be inappropriate to comment on Facebook's decision, but a spokesperson said: "Ireland continues to take an active role in global work to reform the international corporate tax system."

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They added that Ireland has committed to the BEPS process, a project implemented by the G20 in 2012 to tackle tax avoidance, and Ireland is playing its full part in implementation.

The 'Review of Ireland's Corporation Tax Code', was published in September, and includes considerations of what the country needs to do to become fully compliant with the OECD BEPS, said the spokesperson. Furthermore, the Irish minister for finance, Paschal Donohue, launched a public consultation on the key recommendations in the Review on Budget Day.

"In relation to the sustainability of corporation tax receipts, the 'Review of Ireland's Corporation Tax Code' states that the level-shift seen since 2015 can be expected to be sustainable over the medium term to 2020," the spokesperson added.

The UK government announced last month it would apply its "Google Tax" on internet companies' royalties made to subsidiaries in low-tax countries.

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"Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed. And some of these royalties relate to UK sales," said chancellor Philip Hammond.

"So, from April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales, when those royalties are paid to a low-tax jurisdiction."

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