From April, the company will end the practice of routing sales from major UK companies through Ireland, where they were liable to corporation tax at the lower rates charged in the Republic.
Facebook was widely criticised after paying just £4,327 in UK corporation tax in 2014, while more than doubling its UK staff share bonus pot to £35.4 million.
Corporation tax is charged at 20 per cent on taxable profits, but Facebook’s accounts showed a loss of £28.5m for the year in Britain under an arrangement which treated the UK operations revenues as a payment from Facebook Ireland for services.
The total corporation tax bill for the companyamounted to less than a worker on the average wage would pay in income tax and national insurance. The Treasury said it was clear that the new 25 per cent diverted profits tax introduced by Chancellor George Osborne was having an impact.
A Treasury spokesman said: “The Chancellor introduced the world’s first diverted profits tax to ensure multinationals change their behaviour, rather than artificially shifting profits out of the UK. We can see it is already starting to have an impact.”
The tax targets multi-national enterprises which enter into “contrived” arrangements to avoid a taxable presence in the UK and is applicable to profits arising after 1 April, 2015. HMRC will shortly begin assessments of companies’ liabilities for the first year.
Facebook played down suggestions that it was responding to public and political anger over its tax arrangements, insisting that the new set-up was designed to improve “transparency”.
In a statement, a Facebook spokesman said: “On Monday we will start notifying large UK customers that from the start of April they will receive invoices from Facebook UK and not Facebook Ireland.
“What this means in practice is that UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook UK will then record the revenue from these sales.
“In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook’s operations in the UK. The new structure is easier to understand and clearly recognises the value our UK organisation adds to our sales.”