Facebook promises to start paying local tax on SA profits – time for Google to follow

South Africa’s cash-strapped Treasury has just received some welcome news from Facebook’s chief financial director Dave Wehner.

Facebook has a large and hugely profitable slice of SA’s online advertising market. But because SA clients are billed out of Facebook’s international HQ in Ireland, no tax is paid to the SA Treasury. The company’s rationale is purely financial: Ireland has a company tax rate of 12.5%. SA’s is 28%.

After mounting pressure from many countries including the UK, Facebook has agreed to address its morally indefensible practice. In his Facebook blog published on Tuesday, CFO Wehner promised that in future “advertising revenue supported by our local teams…will be recorded by our local company in that country.” Put another way, something over R500m a year in SA-bought advertising on Facebook that’s now going to Ireland will in future be invoiced by the Johannesburg office. And the tax on the profit will paid in South Africa.

It’s a breakthrough in the running battle between smaller countries and tax avoiding multinationals. And is sure to put the local spotlight onto Google, which has a similar structure to Facebook, but six times the revenues. According to PWC, in 2016 Google generated a hefty R2.8bn from its SA online advertising clients. Taxpayers will be hoping where Mark Zuckerberg’s company has now gone, the one controlled by Larry Page and Sergey Brin will follow. Doing so would make Google’s “do no evil” credo almost palatable.

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