Facebook to reduce Irish tax bill in shakeup

Intense scrutiny of multinationals’ tax arrangements, combined with a range of OECD measures designed to reduce tax avoidance, may have contributed to Facebook’s decision to undertake a major overhaul of its tax structure, according to a leading expert.

Chartered Accountants Ireland’s head of taxation, Brian Keegan, said the social media giant’s decision to book the majority of its British sales through its UK office was probably driven by forthcoming changes to the global taxation environment.

The move will see Facebook handle more sales through its UK operations and consequently pay more tax in that jurisdiction, while having the opposite effect on its Irish business, which acts as the company’s international headquarters.

“I don’t think it’s necessarily a problem with the Irish tax environment.

“I think what’s happened is that there’s been a raft of stuff coming from the OECD.

“I suspect that we’re seeing a certain amount of activity from multinationals gearing up in advance of those changes,” said Mr Keegan.

“I think, as well, we’re looking at charging tax by reputation as much as by regulation.

“We had an instance only in the last couple of weeks where Google agreed to pay significant additional amounts of tax to the UK governing authorities without any apparent legal basis, except to get public opinion off their backs.

“I expect that there’s going to be significant restructuring by multinationals as the OECD proposals roll forward. I think we’re at the start of a process and it’s a process where there’s going to be winners and losers.

“My instinct is that even the whole purpose of these OECD proposals, which have been largely adopted now in principle by the OECD countries, is to get multinationals to restructure the way they do things.

“That was their whole intention, so I’ve no doubt we’re going to see [more] changes like these rolling forward in the next year, 18 months, two years.

“Some of them will be towards countries like Ireland; some of them will be moving business out of countries like Ireland — it’s just the way it’s going to be.”

Facebook said on Monday that it 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 and not Ireland. Facebook UK will then record 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,” said a spokesperson, adding that the move had been in development for some time.

The company faced wide scale criticism in the UK late last year when it emerged it paid just £4,327 (€5,591) in corporation tax in 2014.

It also faced criticism in Ireland for paying tax of €3.4m on profits of €12.8m in 2014, despite revenues of €4.8bn.

Ian Dodson, co-founder of the Digital Marketing Institute, said Facebook’s move was unlikely to have a significant impact on its Irish operations.

“The people that are throwing their arms in the air and crying sackcloth and ashes that we’re going to lose Facebook, I think they’re just being extreme.

“Facebook are not about to move a couple of thousand employees out of Ireland on the back of something like this,” Mr Dodson said.