In a move that will be seen as a response to long-standing criticism by global governments of its tax planning, Facebook has announced that it will no longer book non-US revenues from large advertisers through its Dublin unit.
From January 1st, Facebook will begin the process of booking revenues from large advertisers in about 28 countries - including France, Germany and other major European markets - in the countries in which they were earned. It will also pay the taxes on those revenues in those countries, and not in Ireland.
Earlier UK move
The move essentially takes the decision it made a year ago in relation to its UK operation, and mirrors it worldwide to any non-US country in which it has a physical office presence.
It will take until the middle of 2019 to fully roll out the change, although EU countries that put it under most pressure over its tax arrangements are likely to be first in the queue for the changeover.
"Today we are announcing that Facebook has decided to move to a local selling structure in countries where we have an office to support sales to local advertisers," said Dave Wehner, Facebook's chief financial officer.
“We believe that moving to a local selling structure will provide more transparency to governments and policy makers around the world who have called for greater visibility over the revenue associated with locally-supported sales in their countries.”
Shrinking Irish tax bill
When fully implemented, the decision is likely to result in a huge slice of the international income routed through Ireland - €12.6 billion in 2016 - being diverted elsewhere. Facebook’s Irish tax bill - €29.5 million last year - is also likely to significantly shrink.
In practice, the change will only affect the revenues of large advertisers which have contact with a local sales office. Non -US revenues from SMEs and individuals who advertise on Facebook using its automated booking system will continue to be booked through Ireland.
Facebook did not say what proportion of the revenues currently booked through Ireland comprise large advertisers.
It is understood that the move will have no direct impact on job numbers at its Irish operations, which employs more than 2,000 in Dublin, and last month promised “hundreds” more. The company will also continue to maintain its international headquarters here.
Web giants such as Facebook and Google have come under increasing politicial pressure from the European Union and member states to book sales in the countries in which those sales were generated.
The decision by Facebook to make the changes to its structure will be seen as an attempt by the company to get ahead of the curve, given the mood music about potential changes to international tax laws.
If the decision by Facebook is replicated by other major tech companies who have their international headquarters in Ireland, it could result in a reduction of tens of millions in the corporation tax collected by the State.