Facebook is squaring off against the US over more than $9 billion in allegedly unpaid taxes, Financial Times reports.
The US‘ Internal Revenue Service (IRS) says Facebook intentionally “downplayed” intellectual property (IP) it transferred to a subsidiary in Ireland in 2010.
Facebook valued that IP, which reportedly includes software and trademarks, at $6.5 billion. The IRS, on the other hand, maintains that number should’ve been closer to $21 billion.
Tax authorities say the move essentially shifted a huge chunk of Facebook‘s profits from the US to Ireland, which meant the social media giant avoided paying America’s 35% corporate tax rate on its deflated numbers — instead being liable for just 12.5%.
Facebook not the first to use ‘transfer pricing’
The process of moving assets to jurisdictions with low taxes is referred to as “transfer pricing.” It’s common among multinational companies during global expansion, something that Facebook experienced over the past decade.
FT noted that during its opening statement in a San Francisco court on Tuesday, the IRS said that Facebook had reported unrealistically low projections in 2010, despite the company‘s “unbridled growth” that year.
Facebook CTO Mark Shroepfer however argued Facebook‘s growth was “messy.” The company said it valued its assets fairly, as it had struggled to build out its mobile business and sell advertising internationally, adding that “success was not guaranteed.”
A global digital tax regime could be on the horizon
Spain and France have also had enough of tax-dodging tech giants. On Tuesday, the Spanish government approved a new digital services levy that will see companies like Google and Facebook pay 3% tax on earnings from online ads, deals brokered on digital platforms, and user data sales.
The nation anticipates the levy will generate an extra $1 billion per year in tax revenue. France introduced a similar tax in the middle of last year, causing the US to threaten retaliatory tariffs on French wine and leather handbags.
Last week, Facebook founder and CEO Mark Zuckerberg signaled he’s willing to pay more corporate taxes overseas as the prospect of a global digital tax regime looms.
As for Facebook‘s case with the IRS, it’s expected to last around four-to-five weeks.