Published: Sat, July 30, 2016
Economy | By Melissa Porter

Facebook May Owe Billions In Taxes

Facebook May Owe Billions In Taxes

The company disclosed in a regulatory filing that On July 27, 2016, it received a Statutory Notice of Deficiency from the Internal Revenue Service or IRS relating to transfer pricing with its foreign subsidiaries in conjunction with the examination of the 2010 tax year.

"We do not agree with the position of the IRS and will file a petition in the United States Tax Court challenging the Notice".

It made the statement in a filing with the Securities and Exchange Commission on Thursday.

The tax issue was first disclosed publicly three weeks ago when the U.S. Justice Department filed a lawsuit forcing Facebook to comply with the ongoing IRS investigation.

The $3.2 billion in overseas revenue reported by Facebook in the quarter ended June 30 accounted for nearly exactly half of the company's total revenue, with the rest coming from the US and Canada.

The IRS earlier this month sued Facebook for documents related to the transfer, saying it suspected that Facebook's accountants had undervalued some of those assets by "billions of dollars". Facebook said that while the notice applies only to that year, if the IRS takes a similar position for other years it is investigating and prevails in court, it could result in an additional federal tax liability of between $3 billion and $5 billion, plus any interest or penalties.

Facebook's transfer of some of its assets to Ireland has become a common maneuver used by USA technology and pharmaceutical companies, tax experts have said. "This is what companies do when they transfer their own assets; they try to value them as low as possible and when the issue is litigated, they usually end up somewhere in the middle".

To cover this, Facebook hired Ernst & Young to value its assets. Facebook also didn't show up in court on June 29 and didn't provide the information demanded by the IRS. The bill is said to impact the company materially. Facebook did not appear in the court several times and ignored IRS's requests regarding the documents.

-Richard Rubin contributed to this article.

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