Facebook to abandon corporate structure that minimised UK tax bill

Facebook said it will junk the corporate structure that helped minimise its UK tax bill, which drew queries from campaigners and lawmakers as to whether the arrangement had ever complied with UK tax rules.

The social network said on 4 March that it would stop booking sales to major UK clients via an Irish subsidiary and in future report sales agreed by UK staff in Britain.

"In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook's operations in the UK," the company said in a statement. The change comes after the UK government last year, introduced a new tax on profits shifted offshore.

"From the start of April ... UK sales made directly by our UK team will be booked in the UK, not Ireland," Facebook added.

The company however declined to say if it currently booked sales made by UK-based staff, to UK clients, in Dublin.

In case it did, it would be a breach of international tax rules, which required companies to book sales where they were made.

According to Caroline Flint, member of parliament (MP) with the opposition Labour party, the statement "raises more questions than it answers".

"Facebook are trying to improve their corporate reputation but, in so doing, they appear to have confirmed that UK-based staff were conducting UK sales in  the UK, but artificially diverting that income as though it was generated by Facebook Ireland," she said.

Meanwhile, according to The Guardian, Facebook had said it would now divide the revenues it made from UK advertisers into two.

Sales to large advertisers, such as Tesco, would from now on be treated in a more conventional manner and would appear as income on the tax return of Facebook UK Limited, and any resulting profits would be subject to tax by HMRC.

The remaining revenues – ad sales income from smaller UK advertisers would  continue to be routed through Ireland as before.

Meanwhile, billions of euros in sales from UK advertisers currently ended up with Facebook Ireland Limited, but FIL paid very little tax in Ireland. For 2014, the Irish company's reported tax stood at just €3.4 million despite sales of €4.84 billion.

The reason for this was that FIL's taxable income was largely wiped out by huge royalty fees it paid for the right to use Facebook's brand and technology. Those fees were remitted to a Facebook firm in the Cayman Islands.