Daily Management Review

UK to Get Millions from Facebook in Taxes after a Company Policy Change


UK to Get Millions from Facebook in Taxes after a Company Policy Change
After approving fundamental changes to its corporate structure in Europe, Facebook could pay millions of pounds in UK tax.
In a major change in its policy, the revenue generated from Facebook’s largest advertisers displaying content on Facebook will be routed through the UK rather than Ireland. This change in its structure would be implemented from April this year. This is a step that the US based company intends to take to mitigate criticism of tax avoidance and this policy change is expected to generate higher taxable profits in Britain.
“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,” Facebook said.
This move has been under its consideration for some time now, the company said. The invoicing of all the advertisers that Facebook UK deals with directly and those who would be “adding value” to the transaction and advising companies and planning ads will be through the UK. Tesco and Sainsbury’s as well as major advertising buyer WPP are the largest advertising customers for Facebook in Britain.

The company’s international headquarters handling all business outside of North America would take care of all the smaller businesses that use the social network’s online ad-buying tools and will still be invoiced through Facebook Ireland and remain with the international headquarters.
“The majority of our marketers use our self-service ad platform to establish accounts and to launch and manage their advertising campaigns,” stated Facebook in its 28 January 2016 filling with the US Securities and Exchange Commission.
While Facebook also works with traditional advertising agencies, it also has more than 35 sales offices around the world, including the UK.
A higher level of corporation tax, which is levied at 20 percent is expected to generated by the change in Facebook UK as the wing would generate significantly higher revenues and therefore pay a higher taxes.
The first increased bill for taxes will arrive next year.
“The public accounts committee has long made the point that multinational companies are not passive subjects of international tax rules. They choose how to structure their tax affairs and must acknowledge responsibility for those choices. In some cases this involves using complicated tax structures specifically designed to minimize their tax bills,” Meg Hillier MP, public accounts committee chair, said.
The operations of Facebook in the UK, which include more than 850 staff, remained an important part of the business even though the company claimed that the UK represents less than 10% of Facebook’s global revenue. While the UK contributes to some of its most ambitious projects, including its solar powered drone development program, the company is building a new headquarters in London.
“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 recognizes the value our UK organisation adds to our sales through our highly skilled and growing UK sales team,” Facebook said.
“The chancellor introduced the world’s first diverted profits tax to ensure multinationals change their behavior, rather than artificially shifting profits out of the UK. We can see it is already starting to have an impact,” a UK Treasury spokesperson said.
While the Liberal Democrats’ Baroness Kramer called for a “fundamental rethink of this discredited system” of corporation tax, the shadow chancellor, John McDonnell, said the shift meant “little or no real substantive change at this time”.
“This government must wake up to the scale of the corporate tax abuse scandal in the UK. It’s time George Osborne pushed ahead with full country-by-country reporting so that we can finally get to the bottom of what is owed to taxpayers,” McDonnell said.
There was severe criticism of the company when it was revealed that its UK staff taking home an average of £210,000 in 2014 and received more than £35m in a share bonus scheme and pushed Facebook UK into an accounting loss of £28.5m, it paid just 4,327 in corporation tax in the same period.
“The work of the public accounts committee and continuing high levels of public anger about the behaviour of some corporations have done much to move these issues up the political agenda. We will see the effects of Facebook’s new arrangements in due course,” Hillier said.