Facebook will pay millions of pounds more in UK tax after approving fundamental changes to its corporate structure in Europe.
Starting in April, the world’s largest social network will change its policy so that revenue generated from its largest advertisers displaying content on Facebook will be routed through the UK rather than Ireland. The change is expected to generate higher taxable profits in Britain and forms part of the US company’s plan to mitigate criticism of tax avoidance.
Facebook said: “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 company added that the move had been planned for some time. Where Facebook UK deals with advertisers directly “adding value” to the transaction, advising companies and planning ads, it will invoice through the UK. Facebook’s largest advertising customers in Britain include Tesco and Sainsbury’s as well as major advertising buyer WWP.
Smaller businesses that use the social network’s online ad buying tools will still be invoiced through Facebook Ireland, which will remain the company’s international headquarters handling all business outside of North America.
The change is expected to see Facebook UK generate significantly higher revenues and therefore pay a higher level of corporation tax, which is levied at 20%. Its first increased bill will arrive next year.
The UK represents less than 10% of Facebook’s global revenue, but the company reiterated that its operations in the country, which include more than 850 staff, remained an important part of the business. The company is currently building a new headquarters in London, while the UK contributes to some of its most ambitious projects, including its solar-powered drone development.
Facebook said: “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 recognises the value our UK organisation adds to our sales through our highly skilled and growing UK sales team.”
The company faced criticism after it was revealed it paid just £4,327 in corporation tax in 2014, despite its UK staff taking home an average of £210,000 in the same period, receiving more than £35m in a share bonus scheme and pushing Facebook UK into an accounting loss of £28.5m.
The social network has just under 1.6 billion monthly active users, 83% of whom are based outside the US and Canada. According to data from Emarketer, there are approximately 32 million Facebook users in the UK.
Fellow US company Google has also been criticised for its tax arrangements. It agreed to pay £130m in back taxes in January, but the figure included a quarter of the sum related to Google’s company share options scheme.
Facebook and others have come under fire for suspected data protection law violations across Europe, most recently in Germany where the Federal Cartel Office launched an investigation into suspicions of abuse of market share and the national privacy law.