The IRS has decided to sue Facebook.  The central issue is the IRS belief that Ernst & Young, Facebook’s accounting firm, purposefully understated value in the transfer pricing of assets transferred to Facebook’s Irish corporate entity.  Transfer pricing may be the central legal and accounting issue that determines millions if not billions of dollars in unpaid taxes.  When one arm of a corporation transfers assets, property, services or equity to another, the transaction must be at “arm’s-length.”  Legally, this means the transfer price should be market-based, as if the transaction were occurring between non-affiliated companies.

The IRS is concerned about the abuse of transfer pricing strategies as a method for evading the payment of taxes.  Raising or lowering the value of assets, goods or services between companies with the same ownership allows for manipulation of the taxable “basis” of the transaction.  In this case, Facebook stands accused of transferring US “user base, online platform and marketing intangibles” to its Irish subsidiary.

Facebook is not alone in this strategy.  Tech giants Apple and Google have also been pursued by the IRS for moving assets and income to Ireland, where corporate tax rates are significantly lower than in the US.  The IRS faces another critical issue in this case – the statute of limitations, set to expire July 31.  The statute of limitations establishes a time limit for the IRS, so they are unable to pursue tax returns forever in the absence of fraud or other technicalities.

Allen Barron has deep expertise with international business, transfer pricing and tax related issues.  Our experienced tax attorneys and accounting professionals help our clients to legally structure corporate entities, business operations and accounting systems to maximize opportunity while minimizing tax burdens.  The issues in this case – transfer pricing of assets and products, international corporate tax rates and the statute of limitations – require deep expertise and experience.  We invite you to contact us for a free consultation at 866-631-3470.

Contact an Estate Planning, Business Law Or Tax Attorney Today

To set up a free, no-obligation consultation with one of our knowledgeable San Diego based estate planning, business and tax lawyers, or learn more about our tax preparation, accounting and business advisory services call us at 866-631-3470 or contact us.