Amid mounting criticism of low taxes paid by American tech firms overseas, Facebook says it will now report most ads sold in the UK in Britain instead of routing them through a subsidiary in Ireland, which has a much lower corporate tax rate.
The move — which will be put in place in April — could lead the social network to pay millions more in taxes each year in Britain, according to the BBC, which first reported the change.
The company will pay its first higher tax bill in 2017.
“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 company said in a statement.
That is likely a reference to the UK government’s announcement in late 2014 that companies found to be “artificially” diverting their profits generated in Britain to other countries would be required to pay corporate taxes at 25 percent. Corporations regularly pay a rate of 20 percent on profits generated in the UK.
The tax increase quickly became known as the “Google tax,” in reference to concerns about the search engine company’s underpayment of taxes on profits made in Britain. In January, Google agreed to pay £130 million in back taxes covering the previous decade.
While the search engine giant has repeatedly said it complies with all tax rules, officials from the company were harshly rebuked by lawmakers in a hearing last month, with Meg Hillier, the chair of Parliament’s Public Accounts Committee, accusing the Google officials of having “tin ears.”
“Out there, our constituents are very angry,” she said at the hearing. “They live in a different world, clearly, to the world you live in, if you can’t even tell us what you are actually paid,” she told Matt Brittin, the head of Google’s European arm, who had said he could not tell the committee his own salary.
On Friday, Ms. Hillier responded to Facebook’s move, saying that “it shows any large corporation, including Google, has the choice to do the same thing,” according to a tweet by the BBC’s Kamal Ahmed.
But Facebook sources told the BBC that their tax change is not a reaction to the settlement with Google and has been planned “for some time.”
In 2014, the revelation that the social network paid £4,327 in corporate tax in the UK in 2014 sparked an outcry, with observers noting that workers at Facebook’s UK arm were paid an average of more than £210,000, including bonuses.
Facebook has declined to say exactly how much business it does in Britain and is not legally obligated to do so until it reaches 10 percent of its global operations.
Currently, the company employs 850 people in the UK and is building a new London headquarters. Its main European headquarters is located in Ireland, which has become popular with tech firms for its lower corporate tax rate.
Advertising is a major source of revenue for Facebook, with its decision impacting ads it sells to major businesses such as Tesco, Sainsbury’s, consumer goods firm Unilever and the ad firm WPP, the BBC reports.
Ad sales to smaller businesses that are booked online — which require limited participation from Facebook staff — will still be routed through Ireland.
But whether the change – which means Facebook will report more revenue – actually results in the company paying more taxes is still to be determined by the UK’s tax authority, Her Majesty’s Revenue and Customs.
The company would only pay more taxes if the authority (or Facebook) decides it is earning more profit than Facebook has previously claimed, Reuters reports.
That may set up a political battle, as British lawmakers have repeatedly questioned whether the authority has been too lenient in negotiating with big companies like the American tech firms.
George Osborne, a Conservative and the Chancellor of the Exchequer, had praised the Google deal as a “victory” for taxpayers after a long-running investigation, while John McDonnell, the Labor Party's shadow chancellor, called it a “sweetheart deal” for Google, saying the settlement amount was “relatively trivial.”
A spokesman for the tax authority told Reuters it didn’t comment on individual taxpayers but “but HMRC ensures that all multinationals pay the tax due under UK law.”