Sales from big advertisers will no longer will routed through Irish tax haven as pressure mounts on Facebook to pay more corporation tax
Facebook will have to pay millions of pounds more in tax per year in the UK following a shakeup of its tax structure.
Adhering to new rules, Facebook will have to pay a higher percentage of tax on its advertising revenues in the UK, and sales will not be routed through Ireland.
Revealed by the BBC, Facebook sources said that the change will mean the social network has to pay a higher level of corporation tax on the profits it makes in the UK.
The change affects adverts sold for large businesses such as Tesco, Sainsbury’s, and Unilever, said the BBC.
However, profits smaller companies paying Facebook to advertise for them in the UK will still be routed through Ireland.
The restructuring will come into effect in April, meaning that Facebook’s first higher bill will be owed a year later in 2017.
The change, set to be relayed to Facebook staff today, comes after increasing pressure for Facebook to pay more tax in Britain. Facebook paid just £4,327 in corporation tax in the UK in 2014, despite the company making more than £1bn in profts every quarter worldwide.
In an internal memo seen by the BBC, Facebook said: “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.”
A precise figure on the amount Facebook will be paying next year is not yet known, and the company is not obligated to reveal the size of its UK business until it hits 10 percent of its worldwide operations.
“In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook’s operations in the UK,” said Facebook.
“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.”
Until now, Facebook’s UK earnings were taxed on a fee payment from Facebook Ireland, meaning sales in the UK did not affect its tax bill. This was the same tactic as used by Google for UK operations.
But in January, Google agreed to pay “its fair share” of UK tax, and to pay more tax in future, following strong criticism.
Google will pay £130 million in back taxes after striking a deal with UK tax authority HMRC.
The online search and advertising giant said it had agreed a “new approach” to cover taxes since 2005.
The House of Commons Public Accounts Committee had previously accused the company of “aggressive tax avoidance,” adding it was not paying “its fair share of tax” in the UK.
Senior figures at Google said they want to draw a line under the issue, with the company now paying tax based on revenue from UK-based advertisers (something no other company currently does), which reflects the size and scope of its UK business.