LONDON (By Tom Bergin and Michael Holden, Reuters) — Facebook said 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 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 it did not comment on individual taxpayers, “but HMRC ensures that all multinationals pay the tax due under UK law.”
(Reporting by Tom Bergin and Michael Holden in London; Editing by Elaine Hardcastle)