Facebook, Inc. (NASDAQ: FB) has budged into regulatory pressure over its controversial tax practices. The social networking giant has started closing down holding companies in Ireland that it used to channel billions of profits to avoid paying taxes in most countries.
Ireland Exit
The tech giant has reportedly wound down three Ireland holding companies, which have been key to circumventing taxes. The company has reportedly moved intellectual property held by the holding companies to the U.S, U.K, and elsewhere. The winding down of the Irish holding companies have already been recorded by the Irish Companies Registration Office.
Facebook has also confirmed the shutting down of the holding companies, reiterating that the decision is in response to upcoming tax law changes that governments are implementing worldwide. G20 countries have been at the forefront in the push to overhaul tax laws that the tech giants have used to avoid paying more taxes.
The social media giant has been under immense pressure over its arrangements in Ireland, preventing it from paying more taxes in other countries. In 2016, the IRS filed a lawsuit as it sought to understand the company’s tax practices. The court battle, later on, led to the suing of the tech giant over a $9 billion tax bill.
Taxes Increment
While Facebook’s latest action won’t result in a massive windfall of taxes for the U.S, the U.K, and other countries, it should help ensure the companies pay their fair share of taxes. For instance, the company only paid $100,000 more on taxes last year despite its profit jumping 25%. The payments likewise should climb drastically as profit increases.
In its defense, Facebook has always insisted that its effective tax rate has exceeded 20%, in line with the global average of 23% over the past five years. Its tax rate rose to 25% as of December of last year from 13% in 2018.
Facebook is essentially following in Alphabet Inc. (NASDAQ: GOOGL)’s footstep, which moved its intellectual property holdings from Ireland back to the U.S early in the year.
