Facebook is going to start paying taxes to South Korean Government starting from 2019. It is going to calculate sales that it make from advertisements in South Korea as Facebook Korea’s sales and pay taxes accordingly. As Facebook has decided to confront tax evasion controversy face-to-face, countries are now focusing on possible decisions from Apple, Google, and Amazon.
“We have decided not to record profits from local advertisements as our Dublin international headquarters’ profits and instead record them as profits made by local branches of corresponding countries.” said CFP Dave Wehner of Facebook. This indicates that Facebook is going to pay taxes after recording sales that occur from corresponding countries as normal taxes and not transferring them to tax haven.
There are about 30 countries such as France, Germany, Italy and others that have local Facebook branches. Profits from local advertisements will be calculated as profits made by local branches. Local sales structure restructuring process will be completed by the first half of 2019.
This decision made by Facebook implies that it is going to confront its tax evasion controversy that has been pointed out for couple years face-to-face. It will be difficult to carry out ‘income transfer’, which is the core of tax evasion, when sales from each country are counted as local branches’ sales. Income transfer is a main tax evasion method that gives profits made globally to a branch set up in countries such as Ireland and Singapore where tax rates are low.
Facebook along with Google and Apple have been pointed out as companies that may try to avoid taxes by transferring its income to its international headquarters located in Dublin, Ireland. Facebook announced last year that it is not going to transfer its sales profits made from England to its Dublin Headquarters. This decision was response to its criticism of only paying $5,772 (4,321 pounds) to British Government in 2014.
“Many governments and policy planners have been requesting us to make our sales made from corresponding countries more clear.” said CFO Wehner. “We will be able to provide clearer information when we convert to local sales structures.”
Starting from the first half of 2019, advertisement sales made by Facebook Korea will be calculated as sales made in South Korea. As a result, tax authorities will be able to get a better understanding of Facebook’s sales and profits. However it is still not clear exactly how much Facebook is going to pay South Korean Government in taxes as it directly reports local costs along with sales. Amount of taxes can change depending on an amount of costs.
“Change in local sales structure will be introduced in South Korea by the first half of 2019.” said Manager Park Sang-hyeon of Facebook Korea Communication. “Although theories may be brought up depending on sales, it is true that this change is made in order to solve tax evasion controversies.”
It is expected that Facebook’s decision will cause pressure to become stronger on other global businesses that are also suspicious of tax evasion. Global IT companies such as Google and Apple have been criticized for transferring their incomes to their headquarters in Island and Singapore and not paying reasonable amount of taxes to governments even though they make huge amount of profits from those countries.
“International societies are paying more attention to companies such as Apple and Facebook that make huge amount of profits in other countries besides the U.S.” said TechCrunch. “Facebook that is looking to expand globally needs to prepare a suitable system in order to reduce enormous amount of pressure from governments.”
Staff Reporter Oh, Daeseok | ods@etnews.com