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Facebook to pay millions of pounds more in UK tax

Published 04/03/2016

Facebook said the new arrangement would provide greater
Facebook said the new arrangement would provide greater "transparency"
Facebook will pay more tax on UK business - seen here the company's boss Mark Zuckerberg

Facebook will pay millions of pounds more UK tax as they move to stop routing their sales from major UK customers through the Republic of Ireland.

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

In 2014, Facebook posted results which showed that it paid just £4,327 corporation tax despite UK revenues totalling £105 million.

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

Sales from major businesses such as Tesco, Sainsbury's, Unilever and advertising giant WPP will go through the UK but smaller business sales where advetising is booked online will still be routed through the Republic and their Dublin office will remain their International Headquarters.

A Facebook spokesman 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. 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."

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 HM Revenue & Customs 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 the Republic.

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

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 the Republic.

Chancellor George Osborne last year introduced a diverted profits tax of 25% on multinational enterprises with business activities in Britain 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 £130 million in taxes owed over the previous decade.

Responding to Facebook's announcement, a spokesman for HMRC said: "We do not comment on individual taxpayers. But HMRC ensures that all multinationals pay the tax due under UK law and we do not settle for a penny less.

"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 a nd 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."

Liberal Democrat economics spokeswoman Baroness (Susan) Kramer said: "Facebook's decision shows once again that our corporation tax system is fundamentally broken. Whether a company pays its fair share of tax on UK profits cannot be left up to whether they are feeling charitable or not.

"We need a fundamental rethink of this discredited system, yet George Osborne continues to do nothing but boast about sweetheart deals with major companies that are not available to ordinary British businesses and taxpayers."

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