1 Feb

Snap Could Force Facebook’s Hand

WRITTEN BY Ruchi Gupta

London European headquarters

Snap, the parent company of photo-sharing app Snapchat, is preparing for an IPO (initial public offering) later this year and is making moves that rival Facebook (FB) and Alphabet’s (GOOGL) Google are watching carefully. The company has moved to set up its European headquarters in London, suggesting that the startup is not interested in the kind of tax maneuvers that have earned companies like Apple (AAPL) and Amazon.com (AMZN) rebukes in Europe.

Snap’s move to set up a European base in London comes at a time when the company’s non-US revenue is forecast to grow exponentially for the next few years.

Snap Could Force Facebook’s Hand

According to eMarketer, Snap generated $18.3 million, or 5% of its total revenue, in 2015 outside the US. Snap’s non-US revenue is projected to rise to $440 million, or 25% of its total revenue, in 2018.

Pressure to reform tax practices

The UK’s internationally regarded business and legal system could also help boost investor and customer confidence in Snap’s business and tax practices, and save the company from distractive regulatory scrutiny. For instance, Apple is battling claims by the European Commission that it entered an illicit tax arrangement with Ireland to lower its tax burden.

As their complicated tax arrangements in Europe come under increasing review, Alphabet, Facebook, and Amazon have in the recent years begun to restructure their European tax system. With Snap’s move, they are likely to feel more pressure to reform their tax practices to avoid trouble with regulators and win the confidence of investors and advertisers.

Transparency to boost Snap’s standing

Snap’s young audience base has endeared to a growing number of advertisers, including major brands like PepsiCo (PEP), and any increased transparency in the business could attract more advertisers to the platform at the expense of Google, Facebook, Twitter (TWTR), Yelp (YELP), and others.

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