Facebook to pay millions more in UK tax as revenue from largest advertisers to be routed through UK instead of Ireland
Facebook has agreed to pay millions of pounds in tax to the British Government after a key overhaul of its tax structure. Facebook, Amazon, Google, Starbucks and other multinationals have been criticized for using complex tax arrangements in Europe to considerably reduce their bills.
Facebook said in a statement that from April, “UK sales made directly by our UK team will be booked in the UK not Ireland. Facebook U.K. will then record the revenue from these sales.” It said the change would “provide transparency to Facebook’s operations in the UK.”
Income from some of its largest advertisers will now be taxed in the UK after the company announced stopping routing profits through Ireland.
In 2014, Facebook was greatly criticised after it was revealed that the company only paid £4,327 in corporation tax in the UK despite an annual profit of £1.9 billion and with Britain being one of the company’s biggest markets outside the US.
At this stage, it is not clear exactly how much tax Facebook will pay under the new arrangements in Britain, where the corporation tax rate is 20 percent of taxable income. Changes are expected to be put in place in April, with the first, new tax bill to be paid in 2017.
Facebook’s announcement follows Britain’s introduction of a “diverted profits tax” of 25 percent to discourage companies from using complex international arrangements to cut their tax bills.
It was revealed yesterday that HM Revenue and Customs (HMRC) pays Facebook six times the amount the company pays in tax to buy adverts telling people to pay their taxes.
A Freedom of Information request by Channel 4 News disclosed that the company was paid £27,000 by HMRC last year.
“Like all large organisations we find that an increasing number of those we serve communicate through and get their information from social media,” a spokesperson for HMRC said.
“Our investment in social media is carefully evaluated to ensure we are getting maximum value for the taxpayer.”
A spokesperson for Facebook told The Independent the changes announced on Friday were meant to increase “transparency” and fall in line with tax changes made by the current Government.
She added, “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,” she added.
“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 UK represents less than 10% of Facebook’s global revenue, but the company restated that its operations in the country, which include more than 850 staff, remained an important part of the business. The company is currently building a new headquarters in London, while the UK contributes to some of its most ambitious projects, including its solar-powered drone development.
Its Irish base employs almost 1,000 people from 50 countries working in departments IT, engineering, finance, sales and marketing.
The Chancellor, George Osborne, promised to clampdown on tax avoidance by introducing a “diverted profits tax” on companies moving their profits outside of the UK to countries with lower corporation tax rates in order to pay less to the Treasury.
Nicknamed the “Google Tax”, the penalty came into effect in April last year.
A spokeswoman for Prime Minister David Cameron said: ‘We are committed to making sure that multinationals pay their fair share of tax in the UK. That is why we have taken a wide range of action, both domestically and leading the international agenda on this, to make sure we can tackle these issues with other countries.’