DOJ Investigating Facebook for Suspected Irish Tax Dodge


The United States Department of Justice has asked for a federal court order to compel Facebook Inc. to provide the IRS with documents relating to undervaluing global assets transferred to its Irish holding company in a scheme to slash its tax rate to 3.5 percent.

Breitbart News reported on June 30, “Tech companies, including Apple, Cisco Systems and Google, pay lower overseas tax rates than their non-tech U.S. peers, such as Boeing or Johnson & Johnson.” Some of those foreign tax rates are as low 3.5 percent for U.S. tech companies, versus as high as almost 29 percent for U.S. non-tech firms.

The blog stated on Thursday that the DOJ’s Tax Division had filed a petition in U.S. District Court for the Northern District of California on July 6 asking that Facebook and its all its subsidiaries be compelled to respond to a series of production requests for all documents related to agreements between Facebook’s Irish holding company, called “Facebook Ireland Holdings.”

According to the DOJ declaration, the IRS is investigating whether Facebook’s outside accountants may have undervalued by billions of dollars of assets that the deals “purportedly transferred all of Facebook’s worldwide business, with the exception of the United States and Canada,” to Facebook Ireland.

The court filing says the documents relate to an IRS examination of the company’s federal income tax liability for the year ending Dec. 31, 2010. Over the next 6 years, the number of Facebook users grew by almost 1,000 percent, to 1.65 billion users.

According to a declaration, IRS agent Nina Wu Stone, a member of the audit team examining Facebook, “personally delivered six summonses to Facebook’s Chief Financial Officer David Wehner on June 1, requesting that the company produce certain records by June 17.” Facebook failed to appear on the date scheduled and “did not produce the books, records, papers, and other data demanded in the summonses.”

The average American that earns about $42,000 per year is subject to some federal tax. U.S. corporations are also subject to federal taxation under “corporate responsibility.” A loophole in the U.S. tax code allows corporations to avoid corporate responsibility income tax if the profit was earned by a U.S. based company’s overseas subsidiary.

Through what is referred to as the “Double Irish Flip,” large U.S. tech companies, mostly based in Silicon Valley, but operating all over the world, have drastically cut their U.S. corporate statutory tax rate from 35 percent to as low as single digits. This is especially true of Facebook, Apple, Cisco Systems, Google and many others.

To achieve the “flip,” a U.S. tech company first sets up an offshore subsidiary in a tax haven, like the Cayman Islands or the Bahamas. Then the U.S. company sets up an Irish company that is a subsidiary of the U.S. company and licenses some or usually all the U.S. company’s patents to a second Irish company that is a “tax resident” of Ireland.

The second Irish company receives income from the first Irish company’s patents. But as a tax resident of Ireland, all royalties or fees paid to the first company are deductible expenses under Irish law. Thus, the U.S. company does not pay any Federal taxes on the income from the Irish companies because the earnings were not “made” in the U.S.

There is a huge debate about why the IRS under the Obama administration had never moved against what many call a tax scam that has “washed” away tens of billions in U.S. corporate tax responsibility for Silicon Valley.

Cynics claim that an important influence is the lobbying expenditures by computer/Internet companies, which hit over $145 million in 2015, up+2,000 percent in the last 25 years. Tech campaign donations for the 2016 political races are expected to more than double from the record $64.1 million in the 2012 presidential cycle, which was itself up $17.8 million in 2008. predicts that “[f]rom Capitol Hill to the White House, tech money will be everywhere as 2016 looks like it will be Silicon Valley’s biggest year yet.” Led by Yahoo’s Marissa Mayer, Facebook’s Sheryl Sandberg and LinkedIn’s Reid Hoffman, OpenSecrets expects “Left Coast” superstars and worker bees to “fork over most of their contributions to help the Democratic nominee.”


Please let us know if you're having issues with commenting.