Facebook to book advertising revenue locally amid political pressure

BRUSSELS (Reuters) - Social media giant Facebook said on Tuesday it would start booking advertising revenue locally instead of re-routing it via its international headquarters in Dublin although the move is unlikely to result in it paying much more tax.

FILE PHOTO: Facebook logo is seen at a start-up companies gathering at Paris' Station F in Paris, France on January 17, 2017. REUTERS/Philippe Wojazer/File Photo

Corporate taxation has become a hot-button topic in the wake of revelations of tax avoidance schemes by multinationals which have led to calls for companies to pay more tax while Europe has begun exploring options for taxing digital giants.

Facebook Chief Financial Officer Dave Wehner said the company had decided to move to a local selling structure in countries where it has an office to support sales to local advertisers.

“In simple terms, this means that advertising revenue supported by our local teams will no longer be recorded by our international headquarters in Dublin, but will instead be recorded by our local company in that country,” Wehner said in a blog post.

Tuesday’s announcement follows Facebook’s April 2016 shift to recording revenues from its large UK sales customers in Britain which resulted in an increase in the tax it paid.

“We believe that moving to a local selling structure will 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,” Wehner said.

The European Commission is working on legislative proposals, expected in March, to increase taxes on multinational digital companies, who are accused of paying too little in the EU by booking profits in low-tax countries where they have their EU headquarters, like Ireland and Luxembourg.

Among the options the EU executive is considering to raise taxes quickly on tech giants is a levy on revenues from advertising, according to an EU document published in September. Other short-term options are a tax on turnovers of digital firms and a withholding tax on electronic transactions.

Wehner said Facebook would implement the change throughout 2018 and aim to complete it by the first half of 2019.

Facebook’s recent experience in Britain suggests that the move will not lead to the company paying significantly more in tax.

Facebook reported a dramatic rise in revenues and profits reported in the UK for 2016 and had a 2.5 million pound ($3.34 million) tax bill against racking up tax credits in previous years.

However, while the change did lead to an increase in the tax it paid, Facebook still enjoyed a low effective tax rate.

That’s because, even with this measure, Facebook declares relatively little profit in Britain. It reported a profit margin of under 7 percent for 2016 in Britain, compared to a group wide margin of around 45 percent for the year.

Much of the profit linked to UK sales is reported elsewhere are a result of inter-group transactions worth hundreds of millions of pounds.

Additional reporting by Francesco Guarascio and Tom Bergin in London; Editing by Adrian Croft