Facebook May Owe As Much As $5 Billion In Taxes After IRS Probe

Facebook could owe as much as $5 billion in additional taxes after the Internal Revenue Service took a closer look at how the company moved its assets overseas, it said in a regulatory filing this week.

“The company said in a quarterly filing Thursday that the IRS had issued a ‘statutory notice of deficiency’ a day earlier saying Facebook owes more taxes for 2010,” the Wall Street Journal reports.”The July 27 notice came the same day that Facebook said second-quarter profit nearly tripled to $2.06 billion.”

The IRS opened the probe in 2013 after there was widespread political outrage about Facebook’s transfer of assets to Ireland in 2010. Now, the agency says Facebook undervalued those assets by between $3 billion and $5 billion, leaving the social media company on the hook for a hefty tax bill, particularly if it applies those standards to years other than 2010.

“In its lawsuit filed earlier this month in U.S. District Court in San Francisco, the IRS said Facebook entered into agreements in September 2010 with Facebook Ireland Holdings Unlimited to transfer the rights to its ‘online platform and its ‘marketing intangibles’ outside the U.S. and Canada,” the paper reports. “It also entered into a cost-sharing agreement with the Irish subsidiary to cover future development.”

Facebook stressed it does not agree with the IRS decision and will file a petition in U.S. Tax Court challenging the notice. The IRS said in a court filing Monday that it had to sue to have the company hand over its internal documents after the company ignored seven summonses to turn over material related to the inquiry.

“U.S. companies pay the country’s full 35% tax rate on profits they earn around the world,” the Journal notes. “They get foreign tax credits to prevent double taxation and don’t have to pay the residual U.S. tax until they repatriate the money. That gives companies incentives to book profits in low-tax countries and leave the money there.”

Source: San Francisco Business Times, Riley McDermid
Photo: Mark Zuckerberg, founder and CEO of Facebook. (Noah Berger)