Facebook’s Irish goodbye to overseas tax shelter stands out

Facebook Inc. is dropping its use of Ireland as a tax haven, which will make it something of an outlier among tech giants.

The social-networking company said this week that it plans to book more of its revenue in the countries where it sells the ads that contribute, instead of funneling revenue through a subsidiary based in Ireland to avoid taxes. Facebook FB, +0.76%  plans to roll out the program over the next year and a half, and said it isn’t quite clear how much the move will increase the company’s tax bill.

When asked several questions about the change, a Facebook spokeswoman referred MarketWatch to a blog post Chief Financial Officer David Wehner posted Tuesday. The post says the company “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.”

Don’t miss: Here’s what every S&P 500 company actually pays in taxes

The move to report overseas taxes locally comes with a significant asterisk: Facebook’s programmatic ad-sales, which are automated, would not be included in the new changes—Facebook doesn’t disclose the mix between the self-serve tools and other ad purchases in its financial statements. In total, non-U.S. revenue was $15.62 billion for the first nine months of the year.

Companies typically seek to find high tax jurisdictions to record expenses and low tax regions to log sales, thus lowering the potential tax bill the most. Ireland has been a popular destination, but has been under fire from European regulators and other countries, which has led to Irish ministers ending one popular technique, widely referred to as the “double Irish,” by 2020 via a gradual phaseout.

Read: What could happen to FAANG stocks in a recession

Facebook’s move could be result of the end of that technique, which it has reportedly used, or just a response to pressure from the European Commission and investigations in several countries focusing on Facebook’s tax bill.

“These investigations may result in changes to the tax treatment of our foreign operations,” the company wrote in a November document filed with the Securities and Exchange Commission.

Needham analyst Laura Martin says that in addition to international pressure, changes at home could have spurred the change.

“It’s a good question if the Facebook policy shift is related to the proposed U.S. tax legislation,” Martin told MarketWatch in a telephone interview.

Depending on what, if any, version of the tax bill ultimately makes its way to President Donald Trump’s desk, companies parking revenue overseas may be forced to begin paying taxes on it.

See also: Here’s what is in the Republican tax deal

Facebook is far from the only advertising giant that uses Ireland for U.S. tax avoidance, and Ireland is not the only avenue to those gains. Overall, the Organization for Economic Cooperation and Development estimates governments world-wide lose as much as $240 billion annually from tax-avoidance strategies, and says that is a conservative estimate.

Twitter Inc. TWTR, +0.05% incorporated in Ireland in 2013, just before its initial public offering—though the company has yet to turn a profit, so it may just be piling up the potential to offset future profits with tax benefits. The Irish office, which Twitter continues to operate, is one of three material jurisdictions for Twitter around the world (U.S. and California are the two others), according to the SEC filing.

Read: For Twitter, bad news means rampaging stock gains

Advertising giant Alphabet Inc. GOOGL, +0.25% GOOG, +0.01%  too says the “major” jurisdictions where it files taxes are the U.S. and Ireland. The Google parent company did not return a request for comment for this article.

Then there is Apple Inc. AAPL, +0.33% The iPhone kingpin also used Ireland as a place to record foreign revenue, according to its financial statements, and managed to pay annual tax rates of 1% or less on its European profit for more than a decade, according to a European Commission investigation. Apple now faces a large bill for unpaid taxes in Ireland after pressure from the European Union and U.S. lawmakers.

Chief Executive Tim Cook forcefully told congress in 2013, “We pay all the taxes we owe, every single dollar. We don’t depend on tax gimmicks. We don’t stash money on some Caribbean island.”

His statement is true, to some extent. Apple doesn’t stash money on a Caribbean island, but instead runs it through an island in the English Channel of the coast of France called Jersey, according to a New York Times report earlier this year.

All told, Apple holds $253.3 billion of cash and equivalents outside of the U.S. as of the end of October, according to SEC documents.

Facebook shares closed up nearly 1% at $178.30 Wednesday. The stock has gained 55% this year, as the S&P 500 index SPX, -0.05% has increased 19%.

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