Facebook and IRS in Irish pricing dispute

THE Internal Revenue Service (IRS), the US government agency for the collection of tax, has said that the value of Facebook’s licensing agreements with an Irish subsidiary should be increased to $21bn (€19bn), from $6.5bn.

According to a memo filed with the US Tax Court earlier this month, the new valuation would increase Facebook’s 2010 tax deficiency to $3.8m from its original $1.7m bill.

Facebook and the IRS filed pre-trial memos this month in preparation for a trial over a transfer pricing dispute.

In the memo, the IRS said it had initially proposed a $13.9bn value for the agreements with Facebook Ireland Holdings, disputing Facebook’s valuation of $6.5bn.

The memo said that the amount should be increased to $21bn to reflect agreements between Facebook and the subsidiary accurately.

The IRS said the valuation should be increased to bring the agreements’ net present value more in line with regulations issued by the US Department of the Treasury.

It also told the court that public statements made by Facebook executives, such as chief executive Mark Zuckerberg, about the corporate culture and business model of the company should be included in the trial.

In Facebook’s memo, the social media giant claimed that it correctly calculated its tax liability for 2010.

Facebook criticised the IRS for an “arbitrary, capricious and unreasonable” calculation of what it described as three different royalties.

According to Facebook’s 2016 petition to the court, it entered into a licence agreement with Facebook Ireland to monetise the system and its user data.

It entered into the deal in 2010, for which the company was paid an arm’s length price of $1.7bn.

Later that same year, Facebook transferred what it considered to be $4bn worth of contracts with its Irish users to Facebook Ireland, in exchange for 1pc of its marketing revenue.

The trial over the transfer pricing dispute is set for February in San Francisco.

Facebook declined to comment.