Facebook Bends to Foreign Pressure on Taxable Income -- WSJ
December 13 2017 - 3:02AM
Dow Jones News
By Sam Schechner
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 13, 2017).
PARIS -- Facebook Inc. plans to book more revenue in the
countries where it sells ads, becoming the latest U.S. tech giant
to bow to pressure from foreign governments to simplify its tax
structure and potentially pay more income tax overseas.
The social-networking company Tuesday said it plans over the
next year to start recording advertising sales made through local
representatives in the countries where they are located, rather
than funneling that money directly to Ireland, which has a lower
corporate income-tax rate than many other countries.
The move would significantly boost Facebook's revenue recorded
in the 27 countries where it plans to make the change, including
Germany, Japan and Argentina. It hopes to complete the move by the
first half of 2019.
It isn't clear, though, how much the change will boost
Facebook's tax bills. The company also will start booking costs,
including for the use of intellectual property, locally as well, a
spokesman said. That could potentially offset any new profit.
"Moving to a local selling structure will provide more
transparency to governments and policy makers around the world,"
Dave Wehner, Facebook's chief financial officer, said in a blog
post.
There is a lot of money at issue for Facebook, which is making
its shift more broadly than some other tech firms. In the third
quarter, Facebook earned 57%, or $5.85 billion, of its revenue
overseas. Moreover, the bulk of the company's revenue comes from
mature markets that have advertising offices of the type that will
be included in the shift announced Tuesday.
There is a big caveat that could reduce the impact: The change
won't affect Facebook's self-service ads, bought directly on its
website by millions of advertisers. A Facebook spokesman declined
to break out what portion of its revenue would be redirected under
the plan.
Facebook's announcement is the latest example of multinational
companies, particularly U.S. tech giants, changing tax practices to
cope with tighter rules and pressure from governments, particularly
in Europe.
The United Kingdom in 2015 passed a tax on profits the tax
authority says have been inappropriately shifted to low-tax
regimes. More recently, France, Germany and other big European
countries have proposed a tax on big internet companies to make up
for the income tax they would pay if they reported their profit in
the countries where they do business.
A spokeswoman for the French Finance Ministry, which proposed
the new tax, declined to comment on Facebook's plan, saying it was
too early to do so.
Facebook's change also comes as U.S. lawmakers and the Trump
administration work on a tax-code overhaul meant, in part, to
encourage U.S. firms to repatriate more of their profits so they
can be taxed in the U.S.
Amazon.com Inc. in 2015 began collecting revenue from units in
individual European countries, rather than through Luxembourg. The
company is in a tussle with the European Union over whether it owes
additional taxes from a period before that change, with the EU
demanding Amazon pay EUR250 million ($293 million] in back taxes to
Luxembourg. Amazon has said it paid all the tax it owes.
Google made a similar change in 2016 in the U.K., and Facebook
has started booking some revenue locally in the U.K., Australia and
Brazil.
In the U.K., where Facebook made the change partway through
2016, the company has seen its tax payments increase. The company's
2016 revenue in the U.K. jumped nearly fourfold to GBP842 million
($1.12 billion). Its tax bill there rose 22% to GBP5.1 million.
Corrections & Amplifications Facebook changed its U.K. tax
structure partway through 2016, and in that year reported a
fourfold jump in U.K. revenue and a 22% increase in its U.K. tax
bill. An earlier version of this article attributed that change and
those figures to Google, in the last paragraph.
Write to Sam Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
December 13, 2017 02:47 ET (07:47 GMT)
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