Facebook caves under pressure from governments to change tax structure

Facebook caves under pressure from governments to change tax structure

Pablo Tucker
December 13, 2017

This will affect its operations in nearly 30 countries where it has a physical presence such as a sales office.

Now the social media giant has vowed to pay taxes in each country outside the United States where advertising profits are earned.

In 2015, the United Kingdom government introduced a "diverted profits" tax, a higher rate of corporation tax aimed at companies that move profits out of the country.

Facebook is to overhaul its tax structure so that it pays tax in the country where profits are earned, instead of using an Irish subsidiary.

The move should "provide more transparency to governments and policy makers around the world who have called for greater visibility over the revenue associated with locally supported sales in their countries", Facebook said in a statement.

Its move is sure, however, to lead to anxiety within Government at the first tangible evidence that European pressure over Ireland's role as a linchpin in the tax avoidance of multinationals is having an impact.

It now re-routes revenue through its global headquarters in Dublin and attracted criticism in the United Kingdom after it was shown to have paid just over £4,000 in tax in 2014. Last year, the company said it would stop routing United Kingdom sales through Ireland after public outcry over news that Facebook paid only 4,327 pounds (S$7,828) in taxes in 2014. Much of the company's earnings are said to be derived from intellectual property, created in the U.S. but now likely held in Bermuda or another low tax jurisdiction, so deductible royalties will need to be paid to the country holding the IP. The European Commission has taken a hard stance against what is considers to be unfair tax practices, and last week the commission forced Apple Inc.to sign an agreement to pay $15 billion in back taxes to the Republic of Ireland. This is a large undertaking that will require significant resources to implement around the world.

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