Facebook announced that it would stop booking it sales to clients in the UK through Ireland, which is a practice that lowered its taxes. This action follows the introduction by the British government of a new tax on profits that are shifted offshore.
Facebook says in the future that it will report its sales in the UK in Britain. In a prepared statement, the company said in light of tax law changes in the United Kingdom, it felt the change would provide the transparency needed to the operations it has in the UK.
In response to anger by the public over the tax avoidance by corporations, the government in 2015 introduced diverted profits tax that is known widely as Google tax, after the Internet search giant that operated a similar structure to that of Facebook.
The aim of the new law was to tax the profits that were earned in Britain but reported in the different tax havens through use of contrived corporation setups.
Google said it complies with all the tax laws. The company is now part of Alphabet a holding group, and in January agreed to pay $184 million in back taxes to the UK. It also said it would start reporting more of its revenue in Britain.
The BBC reported Facebook’s plans first and said the change by the social media giant would mean the business was ready to pay taxes of millions of pounds more than in the past.
However, that could depend upon whether the tax authority in the UK, known as Her Majesty’s Revenue and Customs will take a tougher line with the Internet behemoth.
While this new structure could see more revenue being reported within Britain, Facebook will be paying more taxes only if it or the HMRC decides that more profit has been earned within Britain than previously claimed by Facebook.
HMRC on previous occasions has downplayed a potential that more reporting of revenue in the UK would mean higher tax liabilities.
However, lawmakers in the UK have criticized the HMRC repeatedly for its leniency with big businesses in investigations carried out by parliament.