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Facebook's accounting shift shows it expects a higher European tax bill next year

Key Points
  • Higher taxes are not the only EU concern for Facebook next year.
  • The company and its rivals face new laws and regulations that will drive up costs.
David Wehner, Facebook CFO
Source: Facebook

Facebook's decision to book European sales through individual countries there starting next year — rather than through a regional headquarters in Dublin — signals that the company thinks higher tax rates are coming in Europe.

It's unlikely CFO David Wehner would undertake the costs of making such a change if Facebook hadn't already sounded things out in Brussels and heard changes are coming in 2018, in the form of higher taxes for U.S. internet companies.

And taxes are not the only EU expense the company faces that is likely going up next year.

Facebook has already warned of higher costs overall, with an initial 2018 forecast that global expenses from this year.

One big driver is the need to add more workers to take down content that violates national laws. Facebook says for that task.

Countries in Europe — where Facebook got 24 percent of its revenue last quarter — are adopting laws and regulations to rein in the anarchic or Wild West nature of social media, where hateful, divisive and sometimes dangerous content can flourish.

Germany, for example, passed a law in June that will fine U.S. companies such as Facebook, Alphabet and Twitter for letting racist or terrorist videos remain on its site for more than 24 hours. Political leaders in the U.K. and France, which like Germany have suffered terrorist attacks, have warned the companies that similar laws could be coming in their nations.

Add to that a new EU privacy law that goes into effect in May that will require Facebook, Google and others to stop collecting information on citizens who opt out.

This tighter regulation could get expensive for Facebook if, for example, illegal content is found, leading to fines from German regulators.

Finding content that slips through the companies' filters is not hard. CNBC and other media outlets that remained on their sites for weeks and months.

Leaders in Brussels are planning to meet in March to discuss blanket tax reform on a region that's home to 17 percent of Facebook monthly users.

The new rules would prevent companies from using countries with lower corporate tax rates, such as Ireland, to reduce their tax bill.

That's why Facebook is going through the cost and expense of keeping a set of books in each of the EU countries it operates in.

An email to Facebook seeking further comment wasn't immediately returned.