Facebook UK restructured to pay corporate tax

Facebook is changing its corporate structure that will generate higher taxable revenues in the UK, in a bid to alleviate the negative criticism of tax avoidance that was generated when the company paid only £4,327 UK corporation tax despite paying £35m in staff bonuses in 2014. From April, it will invoice its largest advertisers from Facebook UK rather than Facebook Ireland, providing "transparency" to the company's UK operations, which represent less than 10% of its global revenue.

Facebook could pay millions of pounds 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 WPP.

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.

Facebook stated in its 28 January 2016 filing with the US securities and exchange commission that “the majority of our marketers use our self-service ad platform to establish accounts and to launch and manage their advertising campaigns”.

But the company has more than 35 sales offices around the world, including the UK, while Facebook also works with traditional advertising agencies.

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.

Meg Hillier MP, public accounts committee chair, said: “The public accounts committee has long made the point that multinational companies are not passive subjects of international tax rules.

“They choose how to structure their tax affairs and must acknowledge responsibility for those choices. In some cases this involves using complicated tax structures specifically designed to minimise their tax bills.”

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 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.”

A Treasury spokesperson said: “The chancellor introduced the world’s first diverted profits tax to ensure multinationals change their behaviour, rather than artificially shifting profits out of the UK. We can see it is already starting to have an impact.”

But the shadow chancellor, John McDonnell, said the shift meant “little or no real substantive change at this time”, while the Liberal Democrats’ Baroness Kramer called for a “fundamental rethink of this discredited system” of corporation tax.

McDonnell said: “This government must wake up to the scale of the corporate tax abuse scandal in the UK. It’s time George Osborne pushed ahead with full country-by-country reporting so that we can finally get to the bottom of what is owed to taxpayers.”

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.



Oxfam’s head of inequality Nick Bryer said: “Paying tax shouldn’t be a voluntary option. The world’s poorest nations are hardest hit by corporate tax dodging - losing at least $100bn every year that could pay for hospitals and schools. We need action to ensure all multinationals report their profits and taxes in every country where they operate.”

Facebook did not disclose the sum of its ad revenue that would now be invoiced through the UK. Margaret Hodge, former Public Accounts Committee chair, said that an investigation into Google’s similar ad-sales arrangements showed that only 1% of its ads were sold offline, but that they accounted for approximately 60% of the company’s revenue in the UK.Hillier said: “The work of the public accounts committee and continuing high levels of public anger about the behaviour of some corporations have done much to move these issues up the political agenda. We will see the effects of Facebook’s new arrangements in due course.”

HMRC, which spent £27,000 on adverts with Facebook in the past year, would not comment on the particulars of the social network’s tax arrangements. A spokesperson said: “We will closely examine any business’s structure on behalf of the British public to make absolutely sure they pay all the tax due to the UK. The new diverted profits tax will ensure the UK gets its fair share of tax from a multinational’s profits by making them restructure to stop shifting profits overseas.”



Sir Martin Sorrell, chief executive of WPP, one of Facebook’s biggest clients, described the social network’s change as “a good move”.

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.