The news that social networking site Facebook is establishing its international headquarters in Ireland is the latest demonstration that headline corporation tax rate remains a critical factor for multinationals choosing global investment locations.

Facebook announced that Dublin will be the centre of its international operations, providing technical, sales and operations support to users and customers in Europe, the Middle East and Africa.

Ireland’s 12.5% corporation tax compares favourably with that of other major investment destinations such at the UK’s 28%, Germany’s 30%, the US’s 39.5% and China’s 25%.

According to PricewaterhouseCooper’s 2008 Global Tax Report, headline corporation tax is only part of the burden of taxes on business. “Overall, corporate income tax accounts for only 37% of the total tax rate,” said the report. Indirect taxation and transparency of tax regime are also factors which determine a location’s attractiveness to businesses. Besides its low headline tax rate, Ireland ranked sixth in the world for ease of paying taxes, according to the report.

Facebook will join other internet firms Google, Ebay and Yahoo!, which all have offices in the capital. Ireland has used its low corporate tax rate for some time to attract foreign multinationals to the country. United Business Media, pharmaceutical business Shire and investment managers Henderson are just a few of the companies that chose Ireland over the UK last year on grounds of its tax rate.

According to reports, Facebook considered a number of different locations before choosing Dublin, said chief of online operations Don Faul. “It has got a really strong, multilingual talent pool, which will help us grow in scale and ultimately get closer to our users, advertisers and developers in the region. In addition, the Irish government has a long track record of being a great partner for global companies as they scale their international operations,” he said.

Facebook’s international expansion comes at a time when its competitors are experiencing disappointing financial results, prompting concerns about whether the company can sustain the expansion in the face of the economic global downturn. Yahoo! announced in October that it will cut 10% of its global workforce by the end of 2008. Ebay announced 1500 job cuts in October, following a wave of cuts by smaller web groups.

Established in 2004 by Harvard student Mark Zuckerberg, Facebook is one of the world’s most popular social networking sites, with about 100 million users.