IRS suing Facebook for $9B in unpaid taxes

Posted:
in General Discussion edited February 2020
The Internal Revenue Service has gone to court to sue Facebook, claiming the social media giant owes in excess of $9 billion in taxes by selling its intellectual property to a subsidiary in Ireland -- a transaction the IRS believes Facebook severely undervalued.




The trial, expected to last between three and four weeks in total after it commenced on Tuesday, has the IRS attempting to convince a judge in San Francisco that Facebook owes billions of dollars of unpaid tax. According to a document filed by Facebook in January, the witness list can include a number of major executives, though seemingly not Facebook CEO Mark Zuckerberg.

Reuters reports the list of witnesses includes chief revenue officer David Fischer, CTO Mike Schroepher, head of hardware Andrew Bosworth, and Naomi Gleit and Javier Olivan of Facebook's aggressive growth team.

The entire affair is based around Facebook's decision to hand its intellectual property to a subsidiary in Ireland, and the perceived value of that property. In 2010, Facebook sold its IP to the Irish entity to cut its overall tax bill, a process that other major firms have undertaken.

Facebook's subsidiaries pay a royalty to the US parent company for its trademark, the user base, platform technologies, and other elements, with Facebook Ireland paying its US counterpart more than $14 billion from 2010 to 2016.

The IRS argues the valuation of the IP was too low and should be taxed accordingly. Facebook believes the low valuation was reflective of the risks involved with its international expansion, and predated its IPO and development of its advertising systems.

The social network stands by its 2010 valuation, as at the time it "had no mobile advertising revenue, its international business was nascent, and its digital advertising products were unproven," according to Facebook spokeswoman Bertie Thompson.

In the event the IRS wins, Facebook would have to pay a tax liability of up to $9 billion, as well as interest and penalties.

While the tax trial may seem similar to one involving Apple, it is a completely different issue at hand. In the case of Apple, the 2016 European Commission ruling related to Apple being charged too little tax by Ireland, with the extremely low tax rates offered by the country deemed to be unlawful "state aid," whereas Facebook's situation involved telling the IRS a potentially incorrect valuation of its IP sale.

Both situations do involve the companies setting up a subsidiary in Ireland to take advantage of the low tax rates, which is quite a common accounting trick for large multinationals.

Comments

  • Reply 1 of 13
    Kudos for the thumbs up imagery. 
    likethesky
  • Reply 2 of 13
    It would be rich if the IRS seized the Facebook domain. 
    watto_cobra
  • Reply 3 of 13
    Great. Can you next go after Amazon, Netflix, FedEx, Nvidia, Starbucks, etc, all who pay $0 in annual income tax?

    https://www.cnbc.com/2019/12/16/these-91-fortune-500-companies-didnt-pay-federal-taxes-in-2018.html

    Considering that "corporations are people too" (and as such are entitled to freedom of speech via unlimited spending), I find it odd that corporations can spend their money re-investing in business assets (buildings, servers, etc) tax-free, but actual humans have to pay income tax first, then can spend our money re-investing in assets like our homes. Why do we have to pay taxes first, but corporations do not?
    edited February 2020 viclauyycjcs2305frankiezoetmbredgeminipawatto_cobra
  • Reply 4 of 13
    Couldn't have happened to a nastier company. I hope that the IRS wins big time.
    hammeroftruthwatto_cobra
  • Reply 5 of 13
    gatorguygatorguy Posts: 22,828member
    I don't know that anyone here should be blindly cheering for the reason the IRS uses as grounds for the additional taxes. Apple for instance relied heavily on IP rights transfer to foreign subsidiaries, primarily Irish-based but perhaps now with Jersey, as a means of reducing their corporate taxes due using substantial licensing fees to reduce profits.

    If they are successful with this against Facebook then Apple, Google, Mircosoft and a plethora of pharmaceutical companies may be next on the IRS agenda. 
    edited February 2020 viclauyycdesignrCarnagelikethesky
  • Reply 6 of 13
    Great. Can you next go after Amazon, Netflix, FedEx, Nvidia, Starbucks, etc, all who pay $0 in annual income tax?

    https://www.cnbc.com/2019/12/16/these-91-fortune-500-companies-didnt-pay-federal-taxes-in-2018.html

    Considering that "corporations are people too" (and as such are entitled to freedom of speech via unlimited spending), I find it odd that corporations can spend their money re-investing in business assets (buildings, servers, etc) tax-free, but actual humans have to pay income tax first, then can spend our money re-investing in assets like our homes. Why do we have to pay taxes first, but corporations do not?
    Agree and I can barely believe the current administration are the ones going after them in the first place.  This is especially true since it is facebook spreading so much of the fake news that actually helps Trump.  I guess they need a pretend enemy to get money for walls and military expansion.
    MplsPredgeminipawatto_cobra
  • Reply 7 of 13
    zoetmbzoetmb Posts: 2,580member
    gatorguy said:
    I don't know that anyone here should be blindly cheering for the reason the IRS uses as grounds for the additional taxes. Apple for instance relied heavily on IP rights transfer to foreign subsidiaries, primarily Irish-based but perhaps now with Jersey, as a means of reducing their corporate taxes due using substantial licensing fees to reduce profits.

    If they are successful with this against Facebook then Apple, Google, Mircosoft and a plethora of pharmaceutical companies may be next on the IRS agenda. 
    Good.  It's about time that corporations pay what they're actually due to pay.   We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.   Having said that, I do think the corporate tax structures don't make sense.   IMO, a corporation should pay taxes in each locale based on the sales/profits in that locale.   A U.S. company shouldn't have to pay taxes on sales say in Italy, unless they bring the profits from those sales back to the U.S., but they should have to pay taxes on those sales in Italy.   JMO. 
    MplsPhammeroftruthCarnageredgeminipawatto_cobra
  • Reply 8 of 13
    maltzmaltz Posts: 231member
    zoetmb said:
    We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.

    But most of the reason is that federal spending jumped 30% or so in 2008, due to that year's bailouts, economic stimulus, and such, and became the new normal.  Tax revenue has set several new all-time highs in the last decade, while at the same time also setting records for deficit spending.  The house, senate, and presidency have changed hands a couple of times during all that, so both parties have been equally irresponsible.
    designrwatto_cobra
  • Reply 9 of 13
    jcs2305jcs2305 Posts: 1,172member
    maltz said:
    zoetmb said:
    We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.

    But most of the reason is that federal spending jumped 30% or so in 2008, due to that year's bailouts, economic stimulus, and such, and became the new normal.  Tax revenue has set several new all-time highs in the last decade, while at the same time also setting records for deficit spending.  The house, senate, and presidency have changed hands a couple of times during all that, so both parties have been equally irresponsible.
    True..  but corps paying their fair share of taxes would hugely offset our deficit. 

    redgeminipawatto_cobra
  • Reply 10 of 13
    jcs2305 said:
    maltz said:
    zoetmb said:
    We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.

    But most of the reason is that federal spending jumped 30% or so in 2008, due to that year's bailouts, economic stimulus, and such, and became the new normal.  Tax revenue has set several new all-time highs in the last decade, while at the same time also setting records for deficit spending.  The house, senate, and presidency have changed hands a couple of times during all that, so both parties have been equally irresponsible.
    True..  but corps paying their fair share of taxes would hugely offset our deficit. 

    Seems to me the whole notion of “fair share” is completely subjective. Is it “fair” that half the country currently pays no Federal income taxes. Is it “fair” that wealthy Americans pay the lion’s share of taxes? I say “no” to both.
    designrwatto_cobramaltz
  • Reply 11 of 13
    jcs2305 said:
    maltz said:
    zoetmb said:
    We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.

    But most of the reason is that federal spending jumped 30% or so in 2008, due to that year's bailouts, economic stimulus, and such, and became the new normal.  Tax revenue has set several new all-time highs in the last decade, while at the same time also setting records for deficit spending.  The house, senate, and presidency have changed hands a couple of times during all that, so both parties have been equally irresponsible.
    True..  but corps paying their fair share of taxes would hugely offset our deficit. 

    Seems to me the whole notion of “fair share” is completely subjective. Is it “fair” that half the country currently pays no Federal income taxes. Is it “fair” that wealthy Americans pay the lion’s share of taxes? I say “no” to both.
    The difference is the wealthy have safeguards to lessen the damage done by paying a higher tax. The middle and lower class do not. Most rich people I know complain about taxes, but don’t need to alter their budgets or spending habits. 
    gatorguyMplsPredgeminipawatto_cobra
  • Reply 12 of 13
    jcs2305 said:
    maltz said:
    zoetmb said:
    We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.

    But most of the reason is that federal spending jumped 30% or so in 2008, due to that year's bailouts, economic stimulus, and such, and became the new normal.  Tax revenue has set several new all-time highs in the last decade, while at the same time also setting records for deficit spending.  The house, senate, and presidency have changed hands a couple of times during all that, so both parties have been equally irresponsible.
    True..  but corps paying their fair share of taxes would hugely offset our deficit. 

    Seems to me the whole notion of “fair share” is completely subjective. Is it “fair” that half the country currently pays no Federal income taxes. Is it “fair” that wealthy Americans pay the lion’s share of taxes? I say “no” to both.
    The difference is the wealthy have safeguards to lessen the damage done by paying a higher tax. The middle and lower class do not. Most rich people I know complain about taxes, but don’t need to alter their budgets or spending habits. 
    Perhaps we can just agree that there are too many taxes.
    watto_cobra
  • Reply 13 of 13
    jcs2305 said:
    maltz said:
    zoetmb said:
    We're now running a $trillion deficit and part of the reason is because of huge corporations who pay no or little federal income taxes.

    But most of the reason is that federal spending jumped 30% or so in 2008, due to that year's bailouts, economic stimulus, and such, and became the new normal.  Tax revenue has set several new all-time highs in the last decade, while at the same time also setting records for deficit spending.  The house, senate, and presidency have changed hands a couple of times during all that, so both parties have been equally irresponsible.
    True..  but corps paying their fair share of taxes would hugely offset our deficit. 

    Seems to me the whole notion of “fair share” is completely subjective. Is it “fair” that half the country currently pays no Federal income taxes. Is it “fair” that wealthy Americans pay the lion’s share of taxes? I say “no” to both.
    The difference is the wealthy have safeguards to lessen the damage done by paying a higher tax. The middle and lower class do not. Most rich people I know complain about taxes, but don’t need to alter their budgets or spending habits. 
    Perhaps we can just agree that there are too many taxes.
    “Too many” sounds weird. We need to look at “how much” related to earnings of capital and labor. Working people pays far more taxes for their work earnings (in %) than rich people pays for their capital earnings (also in %). I believe that’s unfair. W.Buffett implies the above on his “secretary” tale. 
    If the smallest and most productive number of earners is responsible for paying a majority of the taxes, your tax system is in trouble.
    watto_cobra
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