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Facebook could owe $5B in back taxes
- dogma1138 10y agoFacebook owes probably considerably more, 5 bln. $ is what the IRS thinks it can get.
- mentat 10y agoWhat it owes is what the IRS can get, there's not some abstract "just" amount that it should pay.
- marcoperaza 10y agoNot commenting on this specific case, but there is such an amount. There's a difference between what's actually just and what can be proven in court.
- stouset 10y agoNo two people are going to agree on what that "just" amount is, and there's no way to otherwise empirically determine it. In other words, it doesn't exist.
- marcoperaza 10y agoSo let me guess, you think OJ didn't do it? What an absurd ontology, truth by legal procedure. There's a difference between the process we use to ascertain facts for purposes of administering force, and what the actual truth is.
- stouset 10y agoIn the scenario of "What a company owes to the IRS", the outcome of legal procedure is the absolute source of truth. There's no definition of that amount outside of any legal context. OJ killing his wife is an event that occurred independently of the existence of our legal system. A company owing taxes to the IRS is a matter that literally only exists within the context of the United States legal code.
- tdaltonc 10y agoJust because you cannot precisely identify the location of an electron, that does not imply that it does not exist.
- stouset 10y agoIn fact, an electron does not have a precise location. We can, however, detect electrons' presence based on their observed effects. There are no equivalent "observed effects" of some hypothetical "just" amount that Facebook should owe to the IRS.
- jerf 10y agoTax law is so complicated and vague that there isn't even an objective measure of what an individual owes, let alone a corporation. There's a lot of discretion in the deductions. I believe over the past ~10 years the IRS has really been cracking down on home office deductions, for instance, and it was all interpretation of existing laws, not new ones. And that's just one example.
- gentleteblor 10y agoIsn't this confusing the "free" market with the tax code? Why is Facebook's tax liability some arcane figure that can only be determined by IRS clout, Facebook lobbying/marketing/lawyers and the revolving door between the private and public sector?
- tedunangst 10y agoIt depends on the value of an intangible asset. Who do you propose set the price?
- gentleteblor 10y agoI agree that there are difficulties in assessing the value of some of the assets (like the article mentions). I just don't believe "what they can get" should be one of our options. Ideally, there would be an impartial entity responsible for settling these valuation disputes (how do we handle this between corporations?). Heck, I'd even take using market valuations (which isn't the same thing as whatever the IRS can get from FB).
- tedunangst 10y agoTransactions between corporations are generally voluntary. They agree on a price, or there's no exchange. The impartial entity in this case is the court system.
- dogma1138 10y agoAll transactions are voluntary but they are also verified by 3rd parties to prevent tax avoidance and other shenanigans. For example if I want to leave a property to some one if I gift it to them they (or I) will have to pay tax on it just like on any other transaction the value of the property would be assessed and it will be taxed. This happens regardless of the sum of the transaction so I can't just sell it to them for 1$ so effectively no tax would be paid, in these kinds of transactions they usually tax the value of the transaction unless it was substantially lower than the estimate (most government estimates are some what low balled). If I report a transaction for a value considerably lower than the estimate they'll investigate it which usually would result in a new estimation and if that one is as well differs considerably than the transaction amount there would be an investigation regarding possible tax evasion. Corporations aren't different when they exchange assets the valuation figures are reported to the authorities if the regulatory body thinks the estimates were set higher or lower than their actual value they can choose to open an investigation and if need be fine or prosecute the offending parties.
- gscott 10y agoConsidering that Facebook is just going to license the IP back to themselves and offshore the money, cheating the United States of tax... they should pay double.
- harry8 10y agoFacebook gets Moxie to do end to end encryption on whatsapp. Google haven't done something similar. American public servants hate end to end encryption because they want to spy on everything. IRS makes this claim against facebook but not a similar one for google. Google and Facebook both aggressively minimize taxes with various offshore schemes. Are these events as totally and wholly unrelated as they should be? What do people think around here?
- stygiansonic 10y agoDidn't Google also partner with Open Whisper/Moxie on E2E encryption for their new Allo chat app? [0] 0. https://whispersystems.org/blog/allo/ https://whispersystems.org/blog/allo/
- zitterbewegung 10y agoI don't think you have been paying attention to a bunch of major companies using techniques like Facebook to avoid taxes. [1] Basically all of these companies do this to avoid double taxation [2] . I think the US government should discourage this tax avoidance and the way it could do that is either reforming the tax code or going after companies that do this. 1. http://visualeconomics.creditloan.com/double-irish-deception-how-google-apple-facebook-avoid-paying-taxes/ http://visualeconomics.creditloan.com/double-irish-deception... 2. http://www.investopedia.com/terms/d/double_taxation.asp http://www.investopedia.com/terms/d/double_taxation.asp
- TACIXAT 10y agoThere is a lack of any evidence showing that those events are related.
- a13n 10y agoSeems a bit paranoid. I also think you're giving too much credit to the government by thinking they're able to competently coordinate this across major agencies (IRS + NSA).
- nostromo 10y agoThe IRS absolutely does work with the FBI, CIA and NSA. This isn't a secret. But I agree this isn't about encryption.
- apapli 10y agoUnfortunately they will probably negotiate their way down to $500m.
- poopsintub 10y agoGood. I not sure how 35% is reasonable to begin with. Maybe big corporations aren't the bad guys. How about the greedy government and mindless spending for once?
- chollida1 10y agoWhen Microsoft got dragged into court for their antitrust issues, wall street pointed out that it was partially because Microsoft didn't play politics. They didn't employ lobbiest in any meaningful way, infact they ignored Washington altogether and just went about their business. Google and Facebook internalized this lesson and became two of the most politically connected companies and some of the biggest spenders on lobbyists in America. It turns out one good thing about the IRS is that it doesn't care much for politics or who is running the show, it just cares that it gets paid what it thinks its owed. Say what you will about the IRS but I think it might be one of the least political organizations in Washington. If the issue is that auditors are signing off on companies licensing its IP and trademarks way too cheaply to a wholly owned foreign subsidiary, then maybe the solution is to have auditors responsible for a portion of the taxes owed if the IRS challenges and wins. At the least it would start making auditors a more risk adverse. Here is a list of companeis with Irish subsidiaries https://en.wikipedia.org/wiki/List_of_companies_of_Ireland https://en.wikipedia.org/wiki/List_of_companies_of_Ireland and check out the list of companies using the double Irish agreement https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement There are alot of heavy hitters watching this case very carefully:)
- zaroth 10y ago> Say what you will about the IRS but I think it might be one of the least political organizations in Washington. I would so love for that to be the case. But I haven't forgotten the massive controversy surrounding IRS red-flagging tax-exempt applications based on their conservative ideology. [1] - https://en.wikipedia.org/wiki/IRS_targeting_controversy https://en.wikipedia.org/wiki/IRS_targeting_controversy
- popmystack 10y agoExcept that's not what happened. It even states as much in the Wikipedia article you linked.
- beatpanda 10y ago> In January 2014, the FBI told Fox News that its investigation had found no evidence so far warranting the filing of federal criminal charges in connection with the scandal, as it had not found any evidence of "enemy hunting", and that the investigation continued. On October 23, 2015, the Justice Department declared that no criminal charges would be filed. But whatever, keep grinding that axe.
- thinkloop 10y agoThe issue here is not related to off-shoring, but to "the transferred intangibles may have been undervalued by billions of dollars." It's a tricky question how to value IP. In many ways web companies' entire businesses are extensions of their IP. Where do you draw the line between idea and execution.
- erdevs 10y agoI think this article helps illuminate the issue and provides more context: http://www.wsj.com/articles/facebook-gets-tax-notice-over-transfer-of-assets-overseas-1469750400 http://www.wsj.com/articles/facebook-gets-tax-notice-over-tr... Curious what others think about this. All for tax optimization in whatever ways the rules allow, but this rule seems silly. Transferring intangibles like IP to a "headquarters" in a low-tax territory in order to avoid domestic taxes doesn't seem right. On a first principles basis, what seems fair is to pay sales/vat taxes on revenue in whatever territory it's generated in and to pay income taxes at whatever the domestic rate is in the country you're actually headquartered in. It's silly that FB is clearly headquartered here (along with many other US-based companies that utilize this loophole) but tries to claim these substantial IPs are housed elsewhere. Alternatively, I could see a system wherein your net income is taxed proportionally in each territory where you actually have expenses. So, if 80% of your expenses (payroll, etc) are generated in the US, you'd pay US corporate income tax on 80% of your net income, and the remaining 20% could be taxed ratably in each jurisdiction where you have associated expenses. In any case, yet another example of an overly complicated and clearly suboptimal, subjective system that ultimately costs billions in overhead and legal fights to adequately resolve.
- eru 10y agoWouldn't the change of rule you are suggesting just lead to Facebook moving HQ to Singapore?
- erdevs 10y agoI mean, if they actually did move their HQ (ie majority of costs, execs, etc) to Singapore, then sure. And that'd be totally fair. What maybe doesn't seem fair (haven't thought about it deeply enough to say for sure) is pretending your HQ is where you really just have a satellite while the core of your IP creation, expenses, exec decision making etc is in the US. It's like you're getting the benefits of being in the US (whatever you think they are), but not paying the full price for those benefits. What I hate about rules like this is that it basically forces you to follow them. You have a fiduciary duty to shareholders as an officer and/or director, and so you have hard time justifying not using a technique like this.
- jasonjei 10y agoMy wife is a CPA and former auditor at E&Y, and mentions that transfer pricing is one of the trickiest things in corporate accounting (relying on "judgment calls" rather than binary decisions). It comes as no surprise that the IRS and Facebook are having a tussle over transfer pricing. Many companies have the same beef with the IRS (not just tech companies) including her employer LVMH based in Paris. It'll just be a matter of negotiation and litigation.
- _RPM 10y agoGood. I wonder if Zuck could PR his way out of this?
- cs702 10y agoUnlike small businesses and individuals, most S&P 500 companies, like Facebook, pay less in income taxes than the official corporate income tax rate of approximately 35% implies, by doing things like booking profits abroad in specially created subsidiaries domiciled in jurisdictions like Ireland and Singapore, and never repatriating those profits, thereby deferring tax payments forever. A couple of years ago the NY Times published an eye-opening interactive chart showing the actual tax rates paid by S&P 500 companies: http://www.nytimes.com/interactive/2013/05/25/sunday-review/corporate-taxes.html?_r=0 http://www.nytimes.com/interactive/2013/05/25/sunday-review/... (Related article: http://www.nytimes.com/2013/05/26/opinion/sunday/who-will-crack-the-code.html http://www.nytimes.com/2013/05/26/opinion/sunday/who-will-cr... ) Regardless of whether you think corporate income taxes should be higher or lower, it's dysfunctional to have a system in which large companies and super-wealthy individuals can avoid paying headline tax rates but small companies and individuals don't have a choice. The IRS, understandably, wants to stop this charade.
- 3327 10y agoSP500 companies don't pay anything while Joe in montana whom gets by with his family on 40K a year pay 35% or whatever the bracket is. law is the law and they are not breaking it but its time the IRS crackdown on this practice.
- tedunangst 10y ago40K pays an effective rate of 11%, in case you were wondering.
- jessaustin 10y agoDoes that vary by e.g. family size?
- tedunangst 10y agoSomewhat. Dependency deduction is relatively small.
- dang 10y agoThis looks like the story that was discussed at https://news.ycombinator.com/item?id=12193216 https://news.ycombinator.com/item?id=12193216.
- kapauldo 10y agoWe need tax reform in this country. This is so unpatriotic. Companies who turn their backs on the country that has been so good to them should be tariffed the amount of the tax savings. I hate this greed and we should fix it with legislation.