Beijing time on the afternoon of February 10, according tomedia reports, the U.S. Internal Revenue Service (IRS) is preparing to meet with Facebook in the U.S. tax court. If Facebook loses, it could face a $9 billion fine. Facebook has been accused of avoiding high taxes in the U.S. by shifting profits to foreign subsidiaries.
One of the most notable overseas sub-companies was founded in Ireland. As a result, the IRS notes, Facebook pays far less tax than the company. The tax court’s decision is expected to bring the dispute to an end after a nine-year dispute between the IRS and Facebook over how the company changed its international operations.
Facebook is not the only U.S. company to use this approach to avoid tax. The company faces a lot of blame in the U.S. and Europe. The final decision in this case may set a precedent for how to deal with other companies with similar situations.
The final outcome of this case depends on the determination of how the company’s resources are distributed among subsidiaries in different countries. These subsidiaries pay royalties to U.S. headquarters companies. The case is based on 2010, before Facebook went public, and how Facebook transferred profits to the company’s Irish subsidiary. If Facebook values the subsidiary’s assets below the actual figure, the fees that the subsidiaries will have to pay to the head office will be reduced, and the license fee, which is the revenue of the U.S. headquarters, will be subject to a 35 percent tax.
Facebook says that because it’s just getting started, the company must take effective steps to reduce taxes to keep the company running. In a Facebook note in May 2009, it wrote, “Given Facebook’s significant pre-tax income in 2010 and the future, reducing tax expenses is key to maintaining profits.” “
Facebook also noted that the valuation came at a time when the company disclosed $7 billion worth of the assets, more than the actual value of the assets. This is understandable given that the company was not operating well at the time and that the Irish subsidiary paid a lot for non-US business. Facebook also said that “Facebook Ireland and Facebook’s other foreign subsidiaries – with high risks, international efforts and ultimately successful sales of Facebook ads” are a big profit.
Bertie Thomson, a Facebook spokeswoman, said she would be happy to present the company’s case in court, and the IRS declined to comment on the matter.
However, the IRS insists that independent parts of Facebook’s global business, such as user base, base and market assets, should not be evaluated separately, but as a whole, and that the values should be greater than the simple additions of the various parts. The government also rejected Facebook’s justification for its Irish subsidiary, citing company executives as saying it had shown strong momentum in 2010.