Facebook (NASDAQ: FB) has followed the path set by Apple when it comes to take advantage of the American tax framework. The San Francisco headquartered company has set up a subsidiary company in Ireland. This Irish subsidiary was created mainly for tax related purposes.
Facebook used the method known in trade parlance as “Double Irish” method. The United States company named Dublin as the base for doing business for everywhere in the world except the North American region. The problem starts that the Internal Revenue Service or IRS had claimed that Facebook has undervalued its move and it wants the company to pay a sum of $1.7 million as taxes for accounting year 2010. Interest will be added to the amount. Tax is also needed to be paid for the subsequent years. According to Facebook, if this is followed, then tax will amount to billions.
The California company told the IRS on October 11 in its court filing that there is no need for it to pay. Whatever the outcome, this fight over tax will probably add fuel to debate concerning tax loopholes. The latter, incidentally, have become a hot topic in presidential race between Donald Trump and Hillary Clinton.
Gaming the system
Facebook asked the US Tax Court to inverse the conclusion of the IRS that the social networking site has undervalued the property at the time it was transferred to its Irish subsidiary. The site, excluding intellectual property, has an assumed value of approximately $5.8 billion. The Internal Revenue Service has claimed almost $14 billion. Facebook, in its legal filing, told the Washington located tax court that the complete deficient amount can be disputed.
Facebook notified its shareholders in July that there is danger of it owing billions of dollars as in the form of back taxes. In its Securities and Exchange Commission filing, the social media behemoth informed investors that while the IRS sent notice is applicable onto to 2010 tax year, the latter has stated it will also apply own logic for tax years after 2010. In case the IRS wins in its position, there will be an extra liability of federal tax to be paid. This amount could be any sum between $3.0 billion and $5.0 billion. Interest and other penalties are extra to this sum.
A number of technology firms including Facebook have come under the scanner for utilizing by legal means a number of ways for reducing the tax burdens.