Facebook Inc. (NASDAQ: FB) decided to change its corporate structure in the United Kingdom to improve transparency on its operations particularly on taxes.
The social network giant said it would no longer book sales to major clients in the United Kingdom through its subsidiary in Ireland.
Facebook’s decision came after the British government implemented a new tax law on profits diverted offshore.
In a statement, the social network giant said “UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook U.K. will then record the revenue from these sales.” The change will be effective in April.
Facebook expected to pay higher taxes in UK
Facebook also stated, “In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook’s operations in the UK.”
On Monday, the company would start informing its major advertising customers that they would receive invoices from its UK staff instead of Ireland.
Market observers expected the social network giant to pay higher taxes in the United Kingdom following the change. Its previous corporate structure allowed it to minimize its tax bill in the country.
In 2014, the company paid just £4,327 in corporate tax in the United Kingdom, less than the £5,393,000 average (£3,180 in income tax and £2,213 in natural insurance) paid by British workers.
UK MPs raise questions
Some of the Members of the Parliament (MP) in the United Kingdom suggested that the company may have violated the tax laws in the country.
Labour MP Caroline Flint said Facebook “raises more questions than answers” after announcing its move. According to her, “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.”
On the other hand, Labour MP Nick Smith said UK tax authority; Her Majesty’s Revenue and Customs (HRMC) should have questioned the company’s tax arrangement.
He said,”Both HMRC and Facebook need to be brought to book over this. “HMRC should not just give Facebook a wrap over the knuckles over this.”
“HMRC ensures that all multinationals pay the tax due under UK law,” according to the spokesperson for the UK tax authority .
The social network giant’s spokesperson said, “We are compliant with UK tax laws.”