Facebook Inc. began facing a tax lawsuit in a San Francisco court on Tuesday,media reported. The Internal Revenue Service has accused the world’s largest social media company of owed more than $9 billion in taxes related to the company’s decision to shift profits to Ireland.
A filing by Facebook in January showed the lawsuit could take three to four weeks, including Hardware CEO Andrew Bosworth and Chief Technology Officer Mike Shroper. Top executives, including Schroepfer, are likely to testify at the time.
The witness list also includes Naomi Gleit and Javier Olivan, senior members of Facebook’s ambitious growth team, and David Fischer, chief revenue officer.
The IRS argues that Facebook underestimated its value when it sold intellectual property to its Irish subsidiary in 2010, a common practice among U.S. multinationals. Ireland’s corporate tax rate is lower than in the US, so the company’s tax bill is reduced.
Under the agreement, Facebook’s subsidiaries pay royalties to their U.S.-based parent company to obtain their trademarks, users and platform technology. From 2010 to 2016, Facebook Ireland paid more than $14 billion in royalties and cost-sharing to Facebook Inc., according to court documents.
Facebook said the lower valuation reflected the risks of the company’s international expansion prior to its 2010 initial public offering and the most profitable product development for digital advertising.
“Facebook’s Irish subsidiary and facebook’s other foreign subsidiaries, not Facebook’s parent company, led the high-risk and ultimate success of selling Facebook ads internationally,” the company said in a pre-trial memo. “
Facebook is the world’s second-largest online ad seller, after Alphabet’s Google. In the fourth quarter of last year, the monthly user base of its core social network grew by 8% to 2.5 billion. About 2.9 billion people use one of the company’s apps each month: Facebook, WhatsApp, Instagram or Messenger.
Bertie Thomson, a Facebook spokeswoman, said the valuation was made because in 2010 “there was no mobile advertising revenue, international business was just starting and digital advertising products were not validated”.
Facebook estimates that if the IRS wins, it could face up to $9 billion in additional federal taxes, plus interest and possible fines.