Facebook has now been ordered to pay taxes in the UK, over any profits brought in by its advertisement business in Britain. The world’s largest social network will no longer be able to route revenues contributed by its largest advertisers, through Ireland. Facebook profits by displaying users ads in News Feed, Pages, for of small to large scale businesses. Its biggest customers in the UK include Unilever, Sainsbury’s, Tesco, and advertising company WPP. Ad revenues collected from these companies, previously run through Ireland, will now have to go through UK tax authorities.
However, small businesses who book advertising space online, with little or no interaction with Facebook staff, will still be able to make use of the Irish option.
This means Facebook will pay significantly higher revenues in the UK, and a higher level of corporate tax on its profits there. Corporate tax on a business’ profit is currently set at 20%. The higher tax bill goes into effect in April, and the first batch of tax Facebook will pays based on the new arrangement, will be in 2017. It is highly likely that it was international pressure regarding tax practices that forced the company into acceding to the revised agreement.
As of now, it is difficult to say how much money the company will pay in taxes next year. As long its UK business is not worth 10% of its global business, it is not required to reveal its size. Note that Facebook’s annual revenue is around $18 billion.