Facebook brings British profits onshore after tax rule change

LONDON (Reuters) - Facebook FB.O reported profits in Britain in 2016 of 58.4 million pounds ($77 million) after the introduction of anti-profit shifting measures but a modest rise in its tax bill shows the challenge Europe faces in working out how to tax technology giants.

A Facebook logo is pictured at the Frankfurt Motor Show (IAA) in Frankfurt, Germany September 16, 2017. REUTERS/Ralph Orlowski

Facebook said in filings with Britain’s corporate register that the turnaround followed four years of losses totaling almost 100 million pounds.

Facebook UK Ltd. had revenues in Britain of 842 million pounds in 2016, up from 202 million pounds in 2015, after it switched to booking sales to larger UK clients in Britain.

In 2015, turnover was booked through Facebook’s European headquarters in Dublin and the British subsidiary’s revenue represented payments from the Dublin unit.

Facebook UK Ltd. reported a current tax charge for 2016 of 5.1 million pounds, compared to 4.2 million pounds for 2015.

The modest change in Facebook’s tax bill reflects the fact that the tax authority had already calculated Facebook had taxable profits, although these never generated actual cash tax obligations because of generous offsets related to share awards.

The 2016 tax charge was also reduced by “additional expenses deductible for tax purposes” which the firm declined to outline.

Facebook still books some sales to smaller clients via Dublin.

European Union members are keen to stop technology giants like Google and Apple from operating almost tax free in the bloc.

The companies, which all say they follow tax rules, typically channel sales via countries like Ireland and Luxembourg whose light touch approach to taxation allows the companies to shift profits on to zero tax jurisdictions.

This means they usually do not report profits in the countries where their salespeople and customers are based, making it impossible for hosts to tax them.

The EU’s executive arm, the European Commission, has outlined options to tackle this including a tax on the companies’ turnover, a levy on online ads and withholding taxes.

If other EU countries could prompt tech companies to report more profit in their jurisdictions, they could reap greater tax revenues than Britain has achieved because they have a less generous approach to deductions than Britain.

($1 = 0.7536 pounds)

Reporting by Tom Bergin; Editing by Edmund Blair