Facebook and other tech giants have experienced increased pressure from governments and other financial agencies to get their taxation strategies in check even since the company received flak back in October when it was found to have only paid $6,128 in taxes in 2014. Responding to the criticism and the pressure, Facebook has announced that it would stop routing the revenue from its biggest advertisers in the U.K. through Ireland, allowing the company to pay a significantly higher tax rate to the U.K.
Previously, ad revenue from Facebook's largest advertisers in the country, such as Tesco Plc., were routed into Ireland, a country that requires very low taxes. Thus, the practice of routing ad revenue to countries with less tax has become a highly controversial business practice, almost akin to tax avoidance.
With the overhaul of its taxation system, Facebook's biggest British customers, such as Tesco, Sainsbury's, Unilever and WPP, would start receiving invoices from Facebook U.K., not Facebook Ireland. Considering that the businesses are U.K.-based and the revenue from their ads did come from the country, such changes are but fair for Britain.
The change, however, only affects the company's largest clients. Smaller businesses that advertise through the social media giant's popular platform, who book advertisements online without any intervention from the company's staff, are exempted from the change in the company's practice.
The British Treasury has extended its optimism about Facebook's revised tax practices.
"The government is committed to making sure multinationals pay their fair share of tax. That's why we've taken unprecedented action both domestically through introducing the diverted profits tax, and internationally through leading the world's major economies to introduce new rules to tackle aggressive tax planning by multinationals," the treasury said in a statement.
While the change in the company's tax practices does not affect the entire lineup of Facebook's clients in the country, it is nonetheless an important step forward. Just as Google has agreed to pay the British government $185 million in back taxes last January, Facebook's decision to modify its tax practices, at least, shows the willingness of tech giants to cooperate to some degree.
