The U.S. Internal Revenue Service (IRS) has been investigating Facebook over its overseas transfer of assets in 2010, and the tech company may owe the taxman billions of dollars. Facebook decided in 2010 to move its global operations — everything, excluding their North American operations — to its Ireland subsidiary in Dublin.
The Irish have a corporate tax of 12.5 percent for most things, while the U.S. slugs corporations with 35 percent. In the U.K., it is 21 percent. As part of that legal move, Facebook hired accounting firm Ernst & Young to help with an evaluation of their assets. But now the IRS has issued Facebook with a “statutory notice of deficiency” on July, 27 saying that the evaluation was way too low.
Watch this report from Newsy about the issue:
The notice is part of IRS investigations into Facebook’s operations, which is part of a broader look at the social media giant’s financial operations from the tax years 2008 to 2013.
There may be more audits of other years in the future, and this has Facebook worried.
“While the notice applies only to the 2010 tax year, the IRS states that it will also apply its position for tax years subsequent to 2010, which, if the IRS prevails in its position, could result in an additional federal tax liability of an estimated aggregate amount of approximately $3 to 5 billion, plus interest and any penalties asserted,” said Facebook in their July 29 filing with the Securities and Exchange Commission.
In short, Facebook say if the IRS prevails with their assessment for additional tax, they say it would have an adverse impact on their “financial position, results of operations, or cash flows.”
According to USA Today, the Justice Department asked a federal court to assist in its audits by forcing Facebook to obey IRS requests for further information on the asset transfers to Ireland. The IRS says Facebook officials have previously failed to appear on numerous occasions to provide information related to their audits of the company.
For more on Facebook’s tax woes, see this report from Bloomberg: