Facebook said Tuesday it will change how it pays tax on its global operations, in a move that may result in the social networking giant contributing more to national budgets across Europe and farther afield.
The announcement comes as policymakers push digital companies — many of which have set up shop in low-tax countries like Ireland and Luxembourg — to be more transparent about where they pay corporate tax.
EU lawmakers also are considering new rules to force big tech companies such as Facebook and Google to pay more into national coffers, amid claims that these tech giants sidestep domestic tax rules despite generating billions of euros annually from citizens across Europe and elsewhere.
As part of its proposed changes, which will take effect starting early next year, Facebook said profits from the majority of its advertising revenue generated in countries where the company has a sales office will now be taxed locally. The social network currently funnels all of its non-U.S. revenue through its international headquarters in Ireland.
“We believe that moving to a local selling structure will provide more transparency to governments and policymakers around the world,” David Wehner, Facebook’s chief financial officer, said in a blog post Tuesday.
The company is expected to start paying tax on its local operations across roughly 30 jurisdictions outside the United States. Those countries include France, Germany and eight other EU countries where Facebook has local offices.
The changes will not affect its American tax obligations, and will be completed by the summer of 2019, according to a company announcement.
The move follows an announcement last year by Facebook that it would start to pay tax on its British advertising sales, a change that led Facebook paying £5.1 million into the U.K. national budget last year, or a 21 percent increase compared to 2015. The company, however, was criticized for not paying enough tax after its British revenues quadrupled, to £842 million, over the same period.
Facebook’s revamp of its global tax practices comes roughly a week before U.S. lawmakers hope to complete a significant overhaul of the country’s tax system, which may impose a low, one-time tax on profits that U.S. multinationals have amassed abroad. The changes, policymakers say, would move the U.S. to the international norm of not taxing companies’ overseas earnings.
Not everyone has welcomed the proposals.
The finance ministers of the EU’s five largest economies criticized the planned tax reform, writing a letter to U.S. Treasury Secretary Steven Mnuchin this week to say the changes would risk “seriously hampering genuine trade and investment flows between our countries” and could be at odds with international trade rules.
Amazon also changed how it pays tax across the EU in 2015 to be more transparent. That included agreeing to contribute tax revenue to national governments where the e-commerce giant has large operations across the Continent.
Despite Facebook’s efforts to mollify the growing clamor for tech companies to pay more tax, it remains unclear whether the social network’s proposed changes will be enough to stop EU policymakers from pushing ahead with changes to the region’s tax policies.
Countries like France have been adamant that digital players should pay more tax on their local operations, while the OECD is expected to publish a report early next year on potential tax changes linked to online sales.