Facebook Korea to pay tax here on ad income

Facebook has decided to start paying tax to Korea on advertising revenue earned here, bowing to mounting complaints over multinational online giants’ tax avoidance.

The U.S. social media company’s decision will place other global information players such as Apple, Google and Cisco under more pressure to follow suit. They have been under fire for slashing their tax bills by rerouting their profits to low-tax countries.

Facebook Chief Financial Officer David Wehner said this week his company has decided to move to a local selling structure in countries where it has an office to support sales to local advertisers.

“This means that advertising revenue supported by our local teams will no longer be recorded by our international headquarters in Dublin, but will instead be recorded by our local company in that country,” he said in a blog post.

So far, the California-based company has booked ad profits made from more than 30 local offices via its international headquarters in Dublin, Ireland, with its low corporate tax rate of 12.5 percent.

However, many foreign governments, led by the European Union (EU), have stepped up efforts to get multinational firms to simplify their tax structures and potentially pay more income tax overseas.

“We believe that moving to a local selling structure will provide more transparency to governments and policymakers around the world who have called for greater visibility over the revenue associated with locally supported sales in their countries,” Wehner said.

“We plan to implement this change throughout 2018, with the goal of completing all offices by the first half of 2019.”

According to Facebook Korea, it will complete rolling out new systems by early 2019.

Globally, corporate taxation has become a major issue as the big digital companies have paid relatively less tax despite huge earnings, leading financial authorities to explore ways to tax them.

In 2014, Facebook paid only 4,327 pounds ($6,128) in taxes in Britain, raising public outrage.

In the wake of the Facebook decision, other online giants may be in the hot seat over whether to follow suit.

“Google, Apple and Cisco are also urged to make public their sales and profits earned here in a transparent way and pay their fair share of taxes,” an official of the local IT industry said.

“The Fair Trade Commission and other government authorities should closely monitor whether Facebook will scale down its profits.”

Global tech giants such as Google, Apple and Cisco have been accused of attempting to avoid taxes here.

Thanks to their status as a limited liability company (LLC), they are not obliged to open their books on revenue and taxation.

Google distributes mobile apps made by Korean developers through Google Asia Pacific in Singapore not Google Korea. Cisco, the dominant provider of network equipment in Korea, has been sidestepping tax here by making its smaller local distribution partners make deals directly with suppliers in other countries with lower tax rates.

According to Google Korea, there is still no change to its tax arrangement.

Amid a growing outcry, the government has sought ways to levy taxes on the companies and its latest plan was introduced Tuesday.

According to the National Tax Service, multinational enterprises whose revenues exceed a certain level are required to submit their aggregate business reports to tax authorities by Jan. 2. This is aimed at assessing high-level transfer pricing and other profit-shifting risks.

Multinational firms with revenue of 1 trillion won or more also will have to submit their so-called country-by-country report to tax authorities.

In September, the National Assembly passed revisions of the External Audit Law, one of which requires LLCs to have external audits and release those reports, including their balance sheets, income statements, surplus appropriation statements and dividend information.

This revision is scheduled to take effect in October next year.