Face­book to pay mil­lions of pounds more in UK tax

The Pak Banker - - COMPANIES/BOSS -

Face­book is set to pay mil­lions of pounds more in tax in the UK af­ter a ma­jor over­haul of its tax struc­ture.

Af­ter heavy crit­i­cism that it was avoid­ing tax, the BBC can re­veal that prof­its from the ma­jor­ity of Face­book's ad­ver­tis­ing rev­enue ini­ti­ated in Bri­tain will now be taxed in the UK. It will no longer route sales through Ire­land for its largest ad­ver­tis­ers. That in­cludes ma­jor busi­nesses such as Tesco, Sains­bury's, con­sumer goods firm Unilever and ad­ver­tis­ing gi­ant WPP.

Smaller busi­ness sales where ad­ver­tis­ing is booked on­line - with lit­tle or no Face­book staff in­ter­ven­tion - will still be routed through Ire­land, which will re­main the com­pany's in­ter­na­tional head­quar­ters.

I am told the change will mean that Face­book will ac­count for sub­stan­tially more rev­enue in the UK and will there­fore pay a higher level of cor­po­ra­tion tax on the prof­its it makes here. Cor­po­ra­tion tax is levied at 20% on the prof­its a busi­ness makes.

The changes will be put in place in April and Face­book's first, higher, tax bill, will be paid in 2017.

My sources tell me that Face­book moved af­ter com­ing un­der in­creas­ing global pres­sure on its tax affairs and as a re­ac­tion to chang­ing tax rules.

There was wide­spread con­tro­ver- sy when it was re­vealed that Face­book paid £4,327 in cor­po­ra­tion tax in the UK in 2014, de­spite Bri­tain be­ing one of the com­pany's big­gest mar­kets out­side the US.

Glob­ally, the com­pany makes more than £1bn of profit ev­ery three months. It does not re­veal fig­ures for how much busi­ness it does in the UK. The govern­ment's new di­verted prof­its tax was also likely to have a puni­tive ef­fect on the busi­ness in Bri­tain.

That tax is set at 25%, higher than the cor­po­ra­tion tax rate, and is aimed at com­pa­nies which use "con­trived" struc­tures to move prof­its out of the coun­try. Face­book ex­ec­u­tives will be told about the changes this morn­ing.

"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, says.

"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.

"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." At this stage, it is not pos­si­ble to say pre­cisely how much tax Face­book will pay. It is not un­der any reg­u­la­tory obli­ga­tion to re­veal the size of its UK busi­ness un­til it reaches 10% of its global op­er­a­tions, which gen­er­ate rev­enues of nearly $18bn (£12.7bn) a year. But 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.

Be­fore this new struc­ture, Face­book's UK rev­enues were based on a fee pay­ment from Face­book Ire­land, which meant that its ac­tual sales here did not af­fect its tax bill.

That is a sim­i­lar struc­ture to Google UK, which is paid by its US par­ent firm for op­er­a­tions in Bri­tain.

Google has also faced con­tro­versy over its tax affairs. In Jan­uary, the BBC re­vealed that the search gi­ant would pay £130m in back taxes af­ter an in­quiry by the tax au­thor­ity, Her Majesty's Rev­enue and Cus­toms.

My Face­book sources in­sist that this move is not a re­ac­tion to the Google set­tle­ment and has been planned "for some time". There has been spec­u­la­tion that Face­book is also the sub­ject of an in­quiry by HMRC over its tax struc­ture, but the so­cial me­dia gi­ant has re­fused to con­firm or deny there is any live process.

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