By Aoife White | Featured on Bloomberg
Facebook Inc. officials failed to show up after getting seven summonses from the Internal Revenue Service demanding internal corporate records on one of its offshore tax strategies, according to an IRS court filing.
U.S. authorities are examining Facebook’s federal income tax liability for the period ending Dec. 31, 2010 and are looking at whether the company understated the value of global rights for many of its intangible assets outside the U.S. and Canada that it transferred to a subsidiary in low-tax Ireland.
While Facebook has supplied some documents to the tax authority, it hasn’t provided books, records, papers and other data demanded in seven summonses, the IRS said in an amended petition filed Monday at the U.S. District Court for the Northern District of California. These include a request to show up at an IRS office in San Jose on June 29.
The documents sought “may be relevant to understanding Facebook executives’ internal views regarding the transferred intangibles, Facebook’s valuation with respect to third-party investors, Facebook’s valuation with respect to the sale of stock by Facebook employees, and valuation modeling with respect to acquired companies and, and thus may be relevant to determining the value of the transferred intangibles,” the IRS said in an amended declaration filed with the updated petition.
Like all multinational companies with intellectual property, Facebook creates cost-sharing arrangements with its foreign subsidiaries for use of the property — and sets prices that the units will pay each other. By transferring its global rights to an Irish subsidiary, Facebook can allocate IP-related income received in higher-tax jurisdictions to lower-tax Ireland, thus lowering its tax bills. Ireland’s corporate income tax rate is 12.5 percent, compared with a statutory tax rate of 35 percent in the U.S.
Summonses were served by personal delivery to David Wehner, Facebook’s chief financial officer, according to the filing.
The company declined to immediately comment.
The IRS began examining Facebook’s 2010 tax filing in January 2013. Tax officials said in a previous filing that a “problematic” approach may have been used to value the property. The rights covered the company’s online platform, which lets users communicate with one another, as well as property that lets advertisers and software developers reach those users and other property, according to the filings.
Facebook employees told the IRS that the property was “interdependent,” and that “it would be difficult to isolate one from the other,” the government said in an earlier filing.
Bloomberg BNA reported on the court filing Tuesday.
The case is U.S. v. Facebook Inc., 16-cv-03777, U.S. District Court, Northern District of California (San Francisco).
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