Facebook Inc.’s (FB) future cash flows and results could suffer a major blow if it loses a battle over new US tax liabilities related to the transfer of its global operations to Ireland in 2010.
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Facebook announced that it received a “notice of deficiency” from the IRS, the USA tax authority, over its transfer pricing with foreign subsidiaries.
The investigation dates back to 2010 when Facebook shifted the rights for its worldwide business, excluding the USA and Canada, to Facebook Ireland as part of a complex maneuver to reduce its tax payments.
The IRS tax penalty could total $3 billion to $5 billion, plus interest, according to a Facebook filing with the Securities and Exchange Commission.
The Inland Revenue Service audited the social media behemoth and concluded that it had undervalued its assets by billions when it transferred its properties to Ireland in 2010.
Facebook officials failed to provide the IRS with documents after receiving seven notices that demanded the company hand over corporate records, books, papers and other data, the IRS said in the filing. If so, Facebook says the penalty could have a “material adverse impact” on its financial position.
The celebrations of Facebook’s second quarter revenue results blowing away expectations and a stock surge of 59 percent might be short-lived after the social network was slapped with a tax bill that could cost it $5 billion. In April 2015, tax officials issued a preliminary presentation to Facebook, which rejected it about a month later, according to the court filing.
Facebook spokeswoman Bertie Thomson was quoted by Bloomberg as saying: “Facebook complies with all applicable rules and regulations in the countries where we operate”.
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The court filing said that Facebook did not appear on 17 June and 29 June at the IRS’s offices in San Jose, California.
