Facebook is all set revamp its tax structure. The reason for such a major step is to pay taxes in the country where profits are earned, rather than resorting to use of an Irish subsidiary, as per a report by BBC. Interestingly, the tech giant will make the change in every office that it has that is situated outside the US. In 2016, Facebook said it would stop routing UK sales through Ireland for tax purposes. The decision was taken after pressure on big companies over their tax affairs from governments and public reaction. Facebook chief financial officer Dave Wehner said that they believe that moving to a local selling structure will provide more transparency to governments and policy makers around the world who have asked for greater visibility over the revenue associated with locally-supported sales in their countries
The step will affect the way Facebook pays taxes in 30 countries which includes Germany, France, Spain, Italy, the Netherlands, Belgium, Norway, Poland, and Sweden, the report added. Earlier in 2014, there was public outrage after it was revealed that Facebook had paid just £4,327 in tax. In April 2016, the company began booking more advertising income through its UK office, instead of Ireland. This significantly boosted revenue and profits for its UK base, and so far Facebook has paid higher taxes. Facebook paid £5.1m in tax in the UK last year, up from £4.2m in 2015, on revenues of £842m.
However, the move would not necessarily mean it will start paying more tax in other countries as a result of the overhaul, Professor Prem Sikka of the universities of Sheffield and Essex told the BBC. Taxes are paid on profits and “”the huge difficulty with large companies is trying to determine exactly what the profit is,” he said. Professor Sikka added that the Facebook move “may well be appeasing public opinion, while at the same time it takes a very small hit on its profits, if any.”
The governing body of Europe, the European Union (EU) is pursuing big technology companies over what they see as avoidance as tax by routing business through lower jurisdiction. Earlier, in 2015 the UK government came up with a “diverted profits” tax a higher rate of corporation tax aimed at companies that move profits out of the country.