Facebook is encountering a lawsuit from the US Internal Revenue Service, which alleges that the social network owes more than $9 billion in unpaid taxes, according to Reuters. On Tuesday, that lawsuit converted into a trial in a San Francisco court, and the core of the case is a deal that happened in 2010 between Facebook and a subsidiary of Ireland it utilizes to shuffle money around internationally. The IRS claims Facebook underrated the intellectual property it sold to the subsidiary, hence avoiding billions of dollars in taxes.
Getting safe from Taxes
Mike Schroepfer, Facebook’s CTO, along with AR and VR chief Andrew Bosworth, and three other According to reports from Reuters, Facebook executives are going to be called to testify and Facebook is expecting the trial to last for three to four weeks.
Several giant technological companies shelter billions from taxes by keeping their money in Ireland because of the low corporate tax rates of the country. That often includes making Irish subsidiaries that license out trademarks, proprietary technology, and other company property for which the subsidiary then pays royalties. The IRS claims Facebook underrated the royalty amount between 2010 and 2016, which slash the domestic tax bill of the company as the royalties are finally reported as income.
Loopholes in the tax system
The Verge reported that Facebook’s Berti Thomson said in a statement that the company “stand[s] behind” the 2010 transaction, which it explains happened when the company had zero mobile ad revenue, a “nascent” international business, and when its “digital advertising products were unproven.”
In previous years, some government organizations have taken steps against the practice. In 2016, the European Union asked Apple to pay $15.4 billion in back taxes to Ireland after claiming that Apple had received illegal tax benefits from the country. Apple completed paying back those taxes in 2018; however, it and Ireland appealed the decision in court last year.
In September, Google stated it is going to pay more than $1 billion following a French investigation into its tax practices. And last December, Google stated it would stop extracting advantage of the so-called “Double Irish” and “Dutch sandwich” tax loopholes that enabled it to shuffle overseas funds from Ireland to the Netherlands and Bermuda and efficiently shelter it from taxes.
Hello, I’m Anna Yeo. If you like my news coverage, please drop a good word in my inbox. I’m journalist by profession and have been part of many major reporting across the globe. I like to write crisp and factual news. I have completed my masters degree in journalism. Feel free to contact me at [email protected]