IRS Going After Facebook’s Offshore Tax Tactics

Social networking giant Facebook has seen federal tax officials seek a court order to access internal corporate records that have to do with the company’s offshore tax strategies.

In a petition filed earlier this week, the Internal Revenue Service contends Facebook missed a deadline in June to hand over information about its offshore tax strategies. According to the IRS petition, the agency wants records from the 2010 tax year, which was the year the company moved global rights for some of its intangible assets, like intellectual property, to Ireland and away from the U.S. and Canada. Ireland has a lower tax than the other two countries. The IRS says Facebook understated the value of the assets to the tune of billions of dollars.

According to the petition, the IRS said Facebook’s tax adviser, Ernst & Young, employed a questionable approach to coming up with the value for the intellectual property by taking each intangible asset separately as opposed to as a whole. Facebook argued it would be hard to isolate one intellectual property from the other.

The IRS has been looking at the 2010 tax filing since the start of 2013 and gave Facebook some early findings in late 2015. Facebook provided its counterargument, and the IRS responded by seeking more information.

The move on the part by the IRS showcases the government agency’s new enforcement tactics to go after large companies that earn money from intellectual property, reported Bloomberg. Bloomberg cited tax lawyers as saying the IRS is getting tougher as it tries to identify tax-avoidance strategies, which, in many cases, involve subsidiaries offshore. In 2013, the IRS said it would request court orders if companies don’t hand over the information that is requested during an audit.

“This is one of the first big cases,” Laurence Bambino, co-head of the global tax group at Shearman & Sterling LLP in New York, told Bloomberg. “It appears to be one of the first instances where they’re seeking to pursue the enforcement remedy.”

Back in 2010, the year the IRS is seeking documents on, Facebook moved the rights to its intellectual property to Facebook Ireland Holdings. The IP included its online platform and a platform that enables advertisers and software developers to reach Facebook users.