Facebook (FB) is shutting the Irish holding companies it has been using to channel hundreds of billions of profits to avoid paying taxes in the UK, US and other countries.
The social media giant’s main subsidiary paid $101m (£75m) in tax in 2018 (the last year records were available) while recording profits of more than $15bn, the Times first reported, citing company documents.
One of the three companies it is winding up, Facebook International Holdings I Unlimited Company, recorded revenue of $30bn two years ago, when global turnover at the social media giant was $56bn.
Facebook said in a statement: “Intellectual property licenses related to our international operations have been repatriated back to the US … This change, which has been effective since July this year, best aligns with our operating structure with here we expect to have most of our activities and people.
“We believe it is consistent with recent and upcoming tax law changes that policymakers are advocating for around the world.”
The Irish companies were used to hold its intellectual property for international sales, and the financial arrangement allowed profits through the country largely untaxed.
The news comes amid an ongoing tax dispute. The US Internal Revenue Service (IRS) has taken the company to court, claiming that it owed $9bn on the back of its decision to move profits to Ireland.
Prior to its stock market flotation in 2012, Facebook valued its intangible assets at $6.5bn but the IRS said the true value was $21bn.
Facebook paid just £28.6m in taxes in the UK last year after recording £2.2bn in gross revenue from advertisers, according to accounts filed this month at Companies House.
In October, it was reported that US tech giants may be forced to pay more tax in Europe and developing countries as the world’s rich nations draft a new global standard for taxing multinational firms.
The move would revolutionise corporation tax, allowing authorities to collect up to 4% more tax. This could potentially raise $100 billion in extra tax revenues around the world.
Under the new measures, companies such as Google (GOOG), Amazon (AMZN) and Facebook, as well as highly profitable European luxury goods firms, will have to pay corporate taxes on profits where they operate and will be unable to shift them to tax havens.
Governments have been under an increasing amount of public pressure to clamp down on the tax avoidance strategies over the last few years.
Earlier this year Washington upended the global digital tax plans after suspending talks with European countries, threatening tariffs if nations in the eurozone continue levying digital taxes.
The Paris-based organisation warned that failure to pass reforms was likely to result in trade wars that would cost 1% of global national income.
The OECD added that the pandemic hindered progress this year on implementing a levy, even though “the Covid-19 pandemic makes the need for a solution even more compelling.”
Failure to reach a global agreement may prompt some countries to go it alone on digital taxation, further stoking global trade tensions.
Several European countries including France and Britain have already announced their own levies in the absence of a global accord.
Watch: Tech faces scrutiny: The U.S. investigates countries planning digital taxes