Facebook Korea to stop using Ireland tax avoidance scheme

Facebook is slated to begin reporting taxes to the South Korean government by 2019, in line with its newly adopted tax policy under which the social networking giant will pay taxes in the country where sales are made, instead of booking all revenue in Ireland.

Facebook announced this week that it will move toward a “local selling structure” in countries where the company operates offices to support sales to local advertisers, addressing growing calls for greater transparency by governments and policymakers around the world.

Under the change, Seoul-based Facebook Korea said Thursday that it will change its tax infrastructure so that it reports its advertisement revenues to the local government, instead of Facebook’s international headquarters in Dublin.

“Facebook Korea will begin preparing for the (tax system) change from next year, with aims to complete the process within the first half of 2019 as announced by our headquarters,” a Facebook Korea spokesperson said.

Facebook’s latest tax structure change comes in response to pressure from major governments including the US and European Union to provide more visibility of revenue generated in the respective jurisdictions.

Last year, the social media giant decided to stop routing sales generated in the UK to Ireland, following public fury over news that Facebook had paid only 4,327 pounds ($5,810) in taxes in the UK in 2014, according to media reports.

Likewise, major foreign tech firms including Facebook and Google have been facing flak in Korea for not revealing their annual revenue and corporate taxes paid here, as they are not legally obliged to do so under local regulations.

The lack of transparency has fueled doubts over whether these companies are paying taxes proportionate to the revenue generated in Korea, and speculation their revenue-booking systems are intricately designed to avoid paying local taxes.

“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,” said Facebook’s Chief Financial Officer Dave Wehner in a statement Tuesday.

Facebook is planning to implement the changes through 2018 with aims to complete the process at all of its international offices by the first half of 2019. The company has more than 30 offices around the world, including Korea.

In addition, the social network company said that Menlo Park, California, will continue to be its US headquarters while its Dublin office will act as its international headquarters.

By Sohn Ji-young (jys@heraldcorp.com)