Facebook is facing a lawsuit from the US Internal Revenue Service, which claims the social network owes $9 billion in unpaid taxes, according to Reuters. That lawsuit went to trial in a San Francisco court on Tuesday, and the crux of the case is a 2010 deal between Facebook and an Irish subsidiary it uses to shuffle money around internationally. The IRS alleges Facebook undervalued the intellectual property it sold to the subsidiary, thereby dodging billions in taxes.
Facebook CTO Mike Schroepfer, AR and VR chief Andrew Bosworth, and three other Facebook executives will be called to testify, Reuters reports, and Facebook expects the trial to last three to four weeks.
Many giant tech companies shelter billions from taxes by keeping their money in Ireland because of the country’s low corporate tax rates. That often involves creating Irish subsidiaries that license out proprietary technology, trademarks, and other company property for which the subsidiary then pays royalties. The IRS claims Facebook undervalued the royalty amount between 2010 and 2016, which cut the company’s domestic tax bill as the royalties are ultimately reported as income.
In a statement, Facebook’s Berti Thomson said the company “stand[s] behind” the 2010 transaction, which it says occurred when the company had no mobile ad revenue, a “nascent” international business, and when its “digital advertising products were unproven.”
In recent years, some government entities have taken action against the practice. In 2016, the European Union ordered Apple to pay $15.4 billion in back taxes to Ireland after ruling that Apple had received illegal tax benefits from the country. Apple finished paying back those taxes in 2018, though it and Ireland appealed the decision in court last year.
In September, Google said it would pay more than $1 billion after a French investigation into its tax practices. And last December, Google said it would stop taking advantage of the so-called “Double Irish” and “Dutch sandwich” tax loopholes that allowed it to move overseas funds from Ireland to the Netherlands and Bermuda, and effectively shelter it from taxes.