DoJ approaches court for Facebook's global assets transfer details
The US Department of Justice sought a court order to force Facebook to provide Internal Revenue Service with more details about the global assets transfer to its Irish subsidiary. DoJ's lawsuit filed in a San Francisco court showed that IRS is examining the social network's tax liability for 2010. Facebook's tax return showed royalty income from transfers of intangible assets to Facebook Ireland Holdings.
Most of Facebook's business runs through its Irish subsidiary
It was reported that most of Facebook's global business ran through its subsidiary Facebook Ireland Limited, which was set up in 2009. The Irish subsidiary's accounts showed that the largest social network's revenue increased four times to €1 billion in 2011. Despite the increase in revenue, Facebook reported a loss for 2011 as it paid most of the revenue as royalty to another overseas company.
Facebook uses Double Irish technique to evade taxes in Ireland
Facebook had allegedly used the Double Irish accounting technique that allowed companies to gain overseas profits without having to pay tax on them; Irish tax law did not include transfer pricing rules. For 2011, Facebook Ireland Holdings paid a corporation tax of a mere €3.23m for revenue of over €1 billion. However, Facebook stated its actions complied with relevant Irish regulations, including taxation.
IRS questions Ernst & Young
Facebook's transfer of global assets to the Irish subsidiary apart from those in Canada and the US is the crux of the matter. IRS is questioning Facebook's accountants- Ernst Young about the valuation of individual assets for income tax. User base, marketing intangibles, and online platform were valued as standalone entities; IRS said they were interdependent entities and should be valued as one.
IRS agent Nina Wu Stone's statement
"The IRS issued a number of information document requests (IDRs), reviewed numerous public documents, and conducted interviews of certain Facebook employees. The information gathered suggested to the IRS examination team that the EY approach to valuing Facebook's transferred intangibles on a stand-alone basis was problematic."
Facebook's intangibles understated by billions
Nina Wu Stone said that the IRS examination team's initial findings suggested that EY valuations of Facebook's transferred intangible assets may have been understated by billions of dollars. According to DoJ's petition, IRS requested a representative of Facebook to appear in person at IRS' San Jose office on 17 June to produce appropriate "books, records, papers, and other data" but, Facebook had not appeared.
Facebook spokesperson's statement
In response to the latest events, a spokesperson for Facebook stated in an email, "Facebook complies with all applicable rules and regulations in the countries where we operate."
Facebook stops booking UK sales via Ireland
Facebook had announced earlier this year that it would stop booking sales to clients of the United Kingdom via Ireland. The social network's move followed the UK government's decision to introduce a new tax on offshore profits. Aborting its age-old practice that reduced its taxes, the company said that in the future, it would report its UK sales in Britain.
Google faces the wrath of the UK's anger
Apart from Facebook, other major technology companies were also criticized for the little amount of tax they pay globally. Google, for instance, faced the UK's anger this year again when its representatives were questioned by the UK Parliament's Public Accounts Committee. Google's global setup, involving subsidiaries in Ireland, Bermuda, and others, was tax-efficient, but it reportedly operates within the legal frameworks permitted by those nations.