A complex, years-long legal battle between Facebook and the IRS will finally be resolved in court, as the company attempts to fend off tax liability that could cost it some $9 billion.
The trial will begin this week in U.S. Tax Court, where the IRS will argue that more of Facebook’s profits should have been taxed at the higher U.S. rate, rather than in the company’s Irish subsidiary, the Wall Street Journal reported.
The government has said in court documents that in 2010 Facebook Inc sold the rights to exploit the Facebook platform outside the United States and Canada to Facebook Ireland Holdings.
Facebook Ireland Holdings in turn leased the rights to exploit the Facebook platform to its own subsidiary, Facebook Ireland Ltd, in return for a fee, accounts for Facebook Ireland Ltd, filed with the Irish company registry, show
They frequently take advantage of a quirk of Irish tax law which allows companies to designate an Irish registered company as being tax resident elsewhere — an arrangment tax professionals have termed a ‘double Irish’.
This involves the rights-holding company being designated as tax resident in a tax haven. However, since the companies concerned are Irish-registered, the transactions don’t trigger a U.S. tax bill.
Facebook previously declined to say where Facebook Ireland Holdings was tax resident. It is an unlimited company, which means it doesn’t have to file accounts so there are no public documents on its status.
Unlimited companies are unusual structures in Ireland but U.S. multinationals frequently establish these as part of their tax structuring.