Facebook fails to show up for US taxman on Irish tax

Facebook officials failed to show up after getting seven summonses from the US Internal Revenue Service demanding internal corporate records on one of its offshore tax strategies, according to an IRS court filing.

Authorities are examining Facebook’s federal income tax liability for the period to the end of 2010 and are looking at whether the company understated the value of global rights for many of its intangible assets outside the US and Canada that it transferred to a subsidiary in Ireland.

While Facebook has supplied some documents to the tax authority, it hasn’t provided books, records, papers, and other data demanded in seven summonses, the IRS said in an amended petition filed earlier this week at the US District Court for the Northern District of California.

The documents sought “may be relevant to understanding Facebook executives’ internal views regarding the transferred intangibles, Facebook’s valuation with respect to third-party investors, Facebook’s valuation with respect to the sale of stock by Facebook employees, and valuation modelling with respect to acquired companies and, and thus may be relevant to determining the value of the transferred intangibles,” the IRS said in an amended declaration filed with the updated petition.

Like all multinational companies with intellectual property, Facebook creates cost-sharing arrangements with its foreign subsidiaries for use of the property — and sets prices that the units will pay each other.

By transferring its global rights to an Irish subsidiary, Facebook can allocate IP-related income received in higher-tax jurisdictions to lower-tax Ireland, thus lowering its tax bills. The corporate tax rate here is 12.5%, compared with a statutory tax rate of 35% in the US.

Summonses were served by personal delivery to David Wehner, Facebook’s chief financial officer, according to the filing. The company declined to immediately comment.

The IRS began examining Facebook’s 2010 tax filing in January 2013. Tax officials said in a previous filing that a “problematic” approach may have been used to value the property.