Earlier this week the US Justice Department asked a judge in San Francisco to compel Facebook to produce internal documents tied to a 2010 asset transfer to the company’s Irish subsidiary. For several years the IRS has been investing whether the social site understated the value of those assets by billions of dollars.
The company transferred rights for its global business, outside of Canada and the US, to Ireland. The rationale for the transfer is tax avoidance. Ireland has comparatively low corporate tax rates.
Accounting firm Ernst & Young valued the assets during the process. The firm may have used a formula that dramatically undervalued those assets being transferred.
Facebook denied that it violated any laws in the matter. However, according to the court filings and published reports, Facebook has declined to produce the requested documents to the IRS. The statute of limitations on the alleged tax avoidance maneuver runs on July 31 — hence the legal action.
Facebook, Amazon, Apple, Google and other US tech companies have been accused, predominantly in Europe, of using Luxembourg and Ireland as tax havens to avoid paying taxes in higher-rate jurisdictions. In the recent past, political and legal pressure and negative PR have generated payments and promises from the companies to change accounting practices in some cases.