US officials have gone to court demanding answers from Facebook about the tax due when the social media giant moved key assets to Ireland.
It is claimed that the value of assets transferred by Facebook to its Irish subsidiary in 2010 may have been “understated by billions of dollars” by the social media giant’s accountancy firm, Ernst & Young. The case puts the spotlight on how multinationals use Ireland for effective tax planning. Facebook’s European headquarters are in Dublin, and it employs hundreds of people in Ireland.
The Internal Revenue Service (IRS) is conducting a deep level probe of Facebook’s activities in Ireland and other jurisdictions in order to properly determine the company’s federal tax liability in relation to 2010. As part of that probe, it wants to examine records from 2008 to 2012.
The so-called intangible assets transferred from Facebook in the US to Facebook Ireland included territorial rights in its “online social networking community of users”.
Intangible assets are often difficult to value, and can also include items such as copyrights and trademarks.
But due to budgetary constraints, the IRS is now running out of time to finish its investigation. The statute of limitations relevant to the case expires at the end of this month.
The IRS has asked a California court to force Facebook to comply with summonses it was served with by the agency in June. Those summonses, the IRS said in court, were served by its agent, Nina Wu Stone, on Facebook chief financial officer, David Wehner, on June 1.
The IRS has also noted that it asked Facebook to extend the statute of limitations in the case, but that Facebook refused unless the IRS agreed to “unacceptable conditions”.
The tax authority has argued in a San Francisco court that Facebook has failed to comply with the June summonses and asked that it now be forced to do so by the court. The summonses were due to be complied with by June 17.
“Facebook failed to comply and did not produce the books, records, papers and other data demanded in the summonses,” the IRS alleged. It said it has previously provided some requested information in relation to the probe, but none of the information requested in the summonses served last month.
In 2013 and 2014, the IRS gathered information from Facebook – to understand how Ernst & Young (E&Y) undertook its valuations in relation to the asset transfers in question.
“The information gathered suggested to the IRS examination team that the E&Y approach to valuing Facebook’s transferred intangibles on a stand-alone basis was problematic,” the agency has told the court. Facebook’s US operation earned royalty income from the assets it transferred to its Irish arm.
The IRS wants detailed information on a wide range of Facebook activities.
A spokesman for the company in Dublin said: “Facebook complies with all applicable rules and regulations in the countries where we operate.”
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