Facebook FB.0 said that it would stop booking sales to UK clients via Ireland, a practice which reduced its taxes, following the British government’s introduction of a new tax on profits shifted offshore.
In future, Facebook will report its UK sales in Britain.
“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.
In response to public anger over corporate tax avoidance, the government last year introduced the “diverted profits tax”, widely known as the “Google tax”, after the search giant operated a similar structure to Facebook’s.
The aim was to tax profits earned in Britain but reported in tax havens through the use of contrived corporate structures.
Google says that it complies with all tax rules.
The company, now part of holding group Alphabet, in January agreed to pay 130 million pounds ($184 million) in UK back taxes and interest and said it would also start to report more revenue in Britain.
The BBC, which was first to report Facebook’s plans, said the change would mean the company was set to pay millions of pounds more in tax.
However, that may depend on whether the UK tax authority, Her Majesty’s Revenue and Customs (HMRC) takes a tougher line with Facebook.
While the new structure will see more revenue reported in Britain, Facebook will only pay more tax if the company or HMRC decides more profit is being earned in Britain than Facebook previously claimed.
HMRC has previously downplayed the potential that increased reporting of revenue in Britain would lead to higher tax bills. However, UK lawmakers have repeatedly criticized HMRC for being too lenient on big businesses in parliamentary investigations.
An HMRC spokesperson said that it did not comment on individual taxpayers, “but HMRC ensures that all multinationals pay the tax due under UK law”.
“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,” the internal post, seen by the BBC, said.
“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,” it said.
“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 internal post said.
The importance of Britain to Facebook is revealed by the fact it employs 850 people in the UK and is building a new headquarters in London.
Facebook has now said that those staff are doing “value-added” work, a key issue in the setting of tax rates.
