Facebook to stop routing UK sales through Ireland

Friday 04 March 2016 22.29
Facebook says the new arrangement, which will start in April, would provide greater transparency
Facebook says the new arrangement, which will start in April, would provide greater transparency

Social media giant Facebook has announced it will stop routing sales from major UK customers through Ireland, in a move which is likely to result in a large increase in the amount of tax it pays in Britain. 

The move comes after widespread criticism of multinational companies' use of complex tax arrangements to minimise their liabilities. 

Facebook said in a statement that the new arrangement - which will start in April - would provide greater "transparency". 

"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," a spokesman for the company 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," a spokesman for the company said.

There was no guidance from Facebook on how much additional revenue from advertisers can be expected to be routed through the UK or how much more tax the company will pay to the UK tax authorities as a result of the move.

The scale of the additional payment, which may run into millions of pounds, will not be known until official accounts are published in 2017.

Smaller advertisers who deal with sales staff based in Ireland will continue to receive invoices from Ireland.

With less revenue going through Facebook's Irish offices, it should mean the amount of tax it pays here will fall. However, it is unlikely to be by an amount that will have a major impact on the Exchequer Figures.

In 2014, Facebook paid €3.4m in corporate tax here having booked €4.8 billion worth of sales through its Dublin operations.

Facebook stand at the Web Summit

Facebook attracted criticism after its results for 2014 showed it paid £4,327 corporation tax in the UK, which is charged at 20% on taxable profits. 

The company's accounts recorded UK revenues totalling £105m. But they showed it made an accounting loss of £28.5m in Britain, after it more than doubled its staff share bonus pot to £35.4m.

Facebook's payment of £4,327 was less than a single UK worker on an average salary would have paid in income tax and national insurance.

Before the introduction of the new arrangements, Facebook's UK revenues have been treated as a payment from Facebook Ireland for services. 

As a result, sales of advertising space to UK customers have not been subject to corporation tax in Britain, but at the lower rates applied in Ireland. 

UK Finance Minister George Osborne last year introduced a diverted profits tax of 25% on multinational enterprises with business activities in the UK which enter into "contrived" arrangements to avoid a UK taxable presence.

It was nicknamed the "Google tax" because it was expected that the internet giant would be among those caught by its provisions. 

But the search engine company was not in fact required to make any payment under the new tax when it reached an agreement with HMRC to pay £130m in taxes owed over the previous decade.

Meanwhile, figures released under UK Freedom of Information laws revealed that the UK tax and customs service, HMRC, paid more to advertise on Facebook than it received from the company in tax. 

HMRC paid £27,000 in 2015 for adverts on Facebook urging people to pay their taxes - more than six times the £4,327 it received in corporation tax from the company the previous year.