Facebook’s decision to stop booking global revenues in Ireland increases pressure on other tech giants who use their operations here to lower tax bills to follow suit, according to campaigners against multinational tax avoidance.
The social media company’s surprise announcement on Tuesday also raises the possibility that the State could lose out on millions of euro of corporation tax if other companies copy its new strategy.
On Tuesday Facebook became the first of the digital companies to bow to political pressure from the European Union and elsewhere, when it said it will no longer book most non-US advertising sales in Ireland.
Last year, it diverted €12.6 billion of revenues to Ireland, attracting €29.5 million of Irish tax, but also the ire of other governments who argue multinationals must stop sending sales here, and instead book them where they are earned.
In what will be seen as an attempt to get ahead of the political agenda, Facebook will next month begin the process of restructuring its global operations into a system of “local selling structures”.
This will affect its operations in almost 30 countries where it has a physical presence such as a sales office.
In future, revenues from all larger advertisers in these locations will be recorded, and the taxes paid, where the ads were sold instead of in Ireland. It already made such a change in the UK last year under political pressure there, and is now essentially mirroring this worldwide.
Booking system
Non-US sales from from SMEs and individuals who advertise on Facebook using its automated booking system will continue to be booked through Ireland.
The changeover will take until mid 2019 to complete, although it is understood that larger European nations such as France and Germany – where complaints against its old strategy are most vociferous – will be at the head of the queue.
"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," said Dave Wehner, Facebook's chief financial officer.
Facebook stressed the changes will have no jobs impact here, where it employs more than 2,000 workers, and that Dublin remains its international headquarters.
Its move is sure, however, to lead to anxiety within Government at the first tangible evidence that European pressure over Ireland’s role as a linchpin in the tax avoidance of multinationals is having an impact.
Google, for example, booked €26.3 billion of global revenues here last year, paying tax of €163 million tax in Ireland. Yahoo, meanwhile, shifted €463 million of global sales to Dublin last year.
The Department of Finance would not comment on Facebook's move, but said Ireland will continue to co-operate with OECD efforts to combat tax avoidance.
‘Aggresive tax planning’
Meanwhile, the UK-based Tax Justice Network, which lobbies against tax avoidance, said the world has “had enough” of aggressive tax planning: “The policy of Ireland – to allow these companies use your country to avoid tax – looks unsustainable.”
UCC lecturer and economist Seamus Coffey also said it was clear that Facebook was responding to political pressure from Europe.
IDA Ireland, the State agency responsible for attracting multinationals, welcomed Facebook's commitment to Ireland, and said the State "continues to compete strongly for international investment and remains an excellent place to do business".
Olivia Buckley, director of communications for the Irish Tax Institute, highlighted the effect of the global political moves against avoidance that have been under way since 2013: "In that context, companies will look at [changing] aspects of their business model."
