San Francisco: Facebook Inc. is facing potential new US tax liabilities related to its transfer of its global operations to Ireland in 2010.
The Internal Revenue Service (IRS) delivered a notice of deficiency to the social media giant Wednesday for $3 billion to $5 billion, plus interest and penalties based on the agency’s audit of Facebook’s transfer pricing, the company said in a filing Thursday to the US Securities and Exchange Commission. Facebook said it plans to challenge the notice in federal tax court.
Meanwhile, the IRS on Monday asked a federal magistrate judge in California to force the company to turn over detailed internal corporate records related to the value of the assets moved to Ireland. They included operations outside the US and Canada.
“Facebook complies with all applicable rules and regulations in the countries where we operate," Bertie Thomson, a Facebook spokeswoman, said in an e-mail.
The IRS claims Facebook’s tax adviser Ernst & Young Llp undervalued the company’s property as it was transferred to Facebook Ireland Holdings Ltd by evaluating pieces of the online platform separately, according to court filings. Facebook employees told the IRS that the property was “interdependent," and that "it would be difficult to isolate one from the other," the government said.
“I don’t think Facebook is necessarily hiding anything, but it’s a fight over pricing," said Stephen Hamilton, a tax lawyer in Philadelphia. “This is what companies do when they transfer their own assets; they try to value them as low as possible and when the issue is litigated, they usually end up somewhere in the middle."
The case is US v. Facebook Inc., 16-cv-03777, US district court, Northern District of California (San Francisco). Bloomberg