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.
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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.
Write to Sam Schechner at email@example.com
Corrections & Amplifications
This item was corrected at 4:55 p.m. ET to show that Facebook saw its tax payments in the U.K. increase fourfold and its tax bill rise 22% after changing how it books revenue there. The original incorrectly attributed those changes to Google.
Facebook saw its tax payments in the U.K. increase fourfold and its tax bill rise 22% after changing how it books revenue there. 'Facebook to Give Countries a Chance to Tax Its Profits from Local Ads,' at 1442 EST, incorrectly said Google's numbers had risen that much, in the last paragraph.
(END) Dow Jones Newswires
December 12, 2017 17:07 ET (22:07 GMT)