24 ms·

Facebook tax court trial begins over Ireland offshore deal

208 points by swat535 7y ago

ThrowAway14592 7y ago
Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion.
- ColanR 7y ago
  It's definitely a worthwhile question - whether facebook actually broke the rules, or whether the IRS just wants blood.
- teej 7y ago
  It sounds like a standard “double Irish” tax scheme. It’s possible FB did the same thing as everyone else and the IRS is just going after one of the big fish to get case law in their favor. If that were to happen, they’d potentially get to go after everyone else who has done it, like Microsoft, Apple, etc.
- cbanek 7y ago
  Well, I guess it depends on the interpretation of the rules. The point of contention seems to be the valuing of assets, which of course FB has incentive to not value highly: > The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while building out global operations, a move common among U.S. multinationals. Ireland has lower corporate tax rates than the United States, so the move reduced the company’s tax bill. The value of intellectual property is kind of a murky thing, especially before it is fully monetized. So I guess the question comes down to: Did FB executives knowingly undervalue the assets to save money on taxes? Is there a paper trail to that effect?
  - SilasX 7y ago
    Part of the problem is, it’s not a legit, best price, arm’s-length, market price. Facebook:Ireland is just a sock puppet for Facebook:USA, and the latter has no intention of selling it to a true outsider. OTOH, if FB:USA sold the rights to FB:I for $1, knowing it would pay billions to license those rights the next year, I don’t get how that can be a proper valuation, even without a clear price discovery mechanism.
    - AnthonyMouse 7y ago
      The real issue is that "market price" legitimately has an amount of slop in it that can eat the company's entire profit. Suppose it costs $50M in salaries to create intellectual property which is then licensed to customers for $500M. Which one is the "market price"? It was sold for both prices, once by the employees to the company and then by the company to the customers. But the difference is a factor of ten. More than that, the difference can be justified. When the $50M is paid, you don't know whether anybody will buy it. Maybe you'll make a billion dollars, or maybe you'll make nothing and just flushed $50M down the toilet. Or maybe you'll make a profit but the profits are spread over future years whereas the work was paid for immediately, so in an arms length market transaction you would expect the price paid to be discounted for the time value of money. So they pay $50M for something they go on to sell for $500M. Which one is the market price? Both of them. This obviously leaves more than enough slack for chicanery.
      - gamblor956 7y ago
        That is not how IP valuation works. The internal cost is not the measure; the potential or actually sales/licensing value of the IP is the measure.
        AnthonyMouse 7y ago
        What measure? It's two different transactions that occur under different terms at different times. Suppose some code is written by an independent contractor instead of your employees. The contractor is in San Francisco. The San Francisco office pays the contractor, then does nothing more than immediately sell the rights to the code to the Ireland office for approximately the same amount. You just demonstrated that that was the market price -- the contractor was willing to accept it in an arms length transaction with an independent third party. The Ireland office could have just as well paid the contractor directly. What value is the San Francisco office supposed to be adding that justifies being awarded a significant fraction of the total revenue?
  - gimmeThaBeet 7y ago
    IANAL, Retroactively going after the valuation of assets based on success years on is awkward at the least, and dangerous at the worst. FB is right, they were still pretty unproven in 2010. It took nearly 1.5 years after their IPO before they convinced people they could make money. I agree, it seems like they would be looking for evidence of undervaluing. But like, let's say you are discount potential cash flows. I don't even know if FB was profitable in 2010, what kind of projected cash flows are you going to have? I just think that if the governments cared about this so much, they would actually fix this. The double irish is going away, but while the US had a chance to fix stuff in 2018, there's still incentive to offshore IP, and in fact, reinforces the advantage of offshoring production.
    - james1071 7y ago
      You don't need to be a lawyer to understand what this is all about and it certainly isn't hindsight, as you have suggested. The reason why the IRS are challenging FB is that Apple's Irish tax arrangements became public and were very embarrassing to the US authorities, which were revealed not to be applying US law. Now, to the matter of hindsight. The essential point is that the transactions have to be a sham to work. There is precisely no point in selling IP from a US subsidiary to one in Ireland at a fair price. That would just trigger an immediate taxable event in the US for no benefit whatsoever. The transaction is by design intended to sell IP at a large undervalue and the game was to satisfy the US and Irish authorities, both of which were happy to play along.
      - gimmeThaBeet 7y ago
        >There is precisely no point in selling IP from a US subsidiary to one in Ireland at a fair price. That would just trigger an immediate taxable event in the US for no benefit whatsoever. Apparently there is if you want to book your international operations in Ireland without the IRS dragging you to court saying you lowballed them a decade ago. Facebook had a funding round in mid 2009, and mid 2010. The 2009 valuation was $9.8B, and $13.8B in 2010. And this case is solely about their ex-US operations, which they're saying basically didn't exist at the time. I mean it's like if you join a startup, how much are your equity options worth? Does the IRS go back and say your options were worth way more because it turns out you were working at the next Netflix or something?
- andrepd 7y ago
  It's an exploitation of the rules which isn't illegal but should be, but isn't because of lobbies and special interest groups.
- Marsymars 7y ago
  I think that if there’s no legitimate business purpose to a particular business activity other than avoiding taxes, it qualifies as tax evasion. If that’s not illegal in your particular jurisdiction, that just means you have legalized tax evasion.
  - deleted 7y ago
    [deleted]
  - TheSpiceIsLife 7y ago
    I understand what you’re trying to say here. And there’s an argument to be made in the other direction too: everyone should be doing everything they legally can, and where it makes financial sense to exert the effort, to avoid paying any more tax than they have to... because giving money and power to politicians is like giving whisky and car keys to teenage boys.
    - asveikau 7y ago
      > And there’s an argument to be made in the other direction too: everyone should be doing everything they legally can, and where it makes financial sense to exert the effort, to avoid paying any more tax than they have to... I hear this a lot and I kind of disagree with the sentiment. I think it's rooted in petty selfishness. If you have enough money, as these companies surely do, good for you, ok. The attitude that sees any additional proceeds as wasted if they "needlessly" go to governments where it gasp might give other people useful public services ... Seems to have priorities in the wrong place. One must have proper perspective when you see financial success. Petty greed over small percentages of huge incomes is not the way to go. There is value in seeing how lucky you are and being happy with what you have, then subsequently seeing your role in our social system as paying some of that back.
      - Sabinus 7y ago
        Apparently some firms used to be like that. Benevolent societies rather than money making machines. Then globalisation happened and those companies were competed out of the market by aggressive multinationals or low wage countries.
- keanzu 7y ago
  There's no way to know for sure. If it was clearly illegal and Facebook's lawyers thought they were going to lose they'd settle with the IRS. If it clearly wasn't illegal the IRS wouldn't pursue the case. The courts are needed in the fuzzy area to interpret the law and answer the question - was it actually illegal? Other alternatives: If, for example, the IRS has been pressed into the case by public or political pressure they may pursue an unwinnable legal case to win in the court of public opinion or to give other corporations with fewer legal resources than Facebook pause before they engage in similar.
- paulddraper 7y ago
  > Is this actually illegal though? At the risk of sounding reductive, that is exactly why it is in court: to figure out if it was illegal.
- mikorym 7y ago
  > Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion. IMO illegality has a human and personal component too. I understand your question is about whether what they did was legal or illegal. But let me give you an example of something that is "clearly wrong" but sometimes legal. Let us assume that you buy something (or are paid cash) and the amount is $100. If you pay $20 tax, then we say you are taxed at 20% and the amount becomes $80. So far so good. Now let's suppose that you claim back that $20 and you put it in your pocket. You still have the $80 (or the item you bought). So you net is at $100 whether in cash fully or $20 cash and something worth $80. Now, let us suppose that in this scenario the cash was paid to you (I am specialising away from the case where you are buying something). You thus have $100, and effectively there was no tax. Now assume you go back to the tax office and you tell them that you are reclaiming another 20% on top of the 20% you paid and then reclaimed. Now, suddenly you have $120. You got $40 in tax reclaims but only ever paid $20. This is essentially the cum-ex scandal. [1] Once with and once without. The with part is the tax you reclaimed; the without is the tax you reclaimed with no base for it at all. Note that these are not tax credits, it's hard cash! The cum-ex tactic is not always illegal, and this is why I say that legality is sometimes dubious (but not always). The reason why they could steal 50 BILLION EUROS from the German tax office is exactly because 1) the banks were and are in on it and 2) they lobbied for and blurred the lines of legality. Apparently the German tax office still thinks, even today, that claiming $40 after only ever paying $20 somehow makes sense. [1] https://cumex-files.com/ https://cumex-files.com/
  - salawat 7y ago
    Mmmm. There must be some epic level shenanigans going on somewhere to make that kind of tax liability recording even possible. A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment. https://www.bloomberg.com/news/articles/2019-09-02/the-german-tax-case-putting-the-entire-finance-industry-on-trial https://www.bloomberg.com/news/articles/2019-09-02/the-germa... If that article is to be believed, I'd suspect there was a bank who needs some serious auditing; because there is simply no way there should be any ambiguity as to who the stockholder of record is at that time; and the issuance of a multitude of "tax certificates" to multiple individuals implies they fundamentally mishandled that particular taxation event. Transactions are atomic, and serial in nature as far as finances go. Automated or manual. They must resolve down to chronological order. This is also part of the reason the Feds hate structuring, and will stamp it out in any form they can get enough information about in order to recognize it. Don't be like these people ever. There is no moral or fiscal imperative to commit or concoct structures/mechanisms capable of becoming or facilitating tax fraud. Hell, this exact kind of chicanery is why AML/KYC/tax law ends up making normal financial service providing such a slog; because every link in the chain is yet another gear in the machine. If it seems like you're having to go through lot of hoops to do a relatively straightforward transfer of value, odds are, you may be taking part in some form of either structuring or other financial engineering. If you think that's a tenable of affairs, have fun, but when it comes back around, don't be surprised if there isn't much sympathy to be found.
- MarkMc 7y ago
  It should be illegal. The company has a strong incentive to undervalue the asset, and 98% of the time IP assets are transferred to a related overseas party it is to minimize tax. Countries would be better off if they simply did not allow IP assets to be transferred to a subsidiary in a different country. The IP stays in the country where it was created, or else sold on the open market.
- tialaramex 7y ago
  Some countries have GAAR a General Anti-Avoidance Rule. Exactly how these rules work varies but e.g. the English law version uses a trick called the Double Reasonableness test. This says avoidance is legal IF a reasonable person (such as a juror) thinks that any reasonable person (here a different hypothetical person that the juror may well not agree with) might think that there was some other reason to do what was done besides to avoid tax. For example, tax free savings accounts are often mentioned as "avoidance" in this context, to suggest that it's somehow nonsense to criminalise avoidance. But saving money is a reasonable thing lots of people might want to do anyway even if there was no tax advantage. On the other hand, a scheme in which rich people pay somebody else to pointlessly buy and sell cars at a loss makes no sense - except that they then claimed a large tax discount as second hand car dealers... One of the cleverest parts of the English scheme is that tax advisers, who sell such schemes to the rich for lots of money, are insulated from any penalty for doing so... As long as they tell the tax authorities how their scheme is supposed to work.
- DyslexicAtheist 7y ago
  tax avoidance is tax evasion for the rich. the only difference is barrier of entry which starts at around 1MM for avoidance (very low). if you're below that and still insist on playing this game, the tools at your disposal will almost always fall under evasion (and be considered a crime).
seibelj 7y ago
I truly wish that the corporate tax rate was 0. Not 25, not 15, but 0%. Then all of this ridiculous nonsense around crony capitalists lobbying for special tax breaks, “double Dutch Irish sandwiches”, and the insane discrepancies between big business and small business in regards to tax games would all go away. Just increase capital gains to match income tax and be done with all of this bullshit. Amazon pays an effective rate of 0% anyways.
- andrepd 7y ago
  What about closing the loopholes? They're known for decades, why not stamp down, with teeth, on this sort of thing?
  - seibelj 7y ago
    There will always be loopholes. Any corporate tax rate above 0% will have carve outs for any number of industries that are favored for any number of reasons. If it was 0, huge swaths of busy-work jobs in law and tax industries would go away. They provide no value to society.
    - andrepd 7y ago
      But in a capitalist system, that which could be good is a problem. Now you have swathes of people who become unemployed. You now probably have to support them with welfare (and without corporate tax revenue to boot :)).
- bpodgursky 7y ago
  This is a 100% reasonable policy, but it's a really hard sell for people who don't understand how business income actually works, and how the money would be captured by far more functional taxes as dividend income or cap gains. I don't think your comment is going to do well on HN. Maybe leave INCREASE CAPITAL GAINS in all caps. Or, CAPTURE THE SAME MONEY AS DIVIDEND INCOME OR CAPITAL GAINS. Perhaps: IT IS THE SAME MONEY CAPTURED LESS CONFUSINGLY AND LESS PRONE TO CHEATING
300bps 7y ago
Comes down to what was the value of Facebook’s intellectual property when it was sold to its Irish affiliate. The IRS is saying they valued it much too low to their benefit.
deleted 7y ago
[deleted]
avalys 7y ago
The headline is inaccurate - the IRS did not sue Facebook today. This was the first day of the trial. The lawsuit was originally filed in 2016 and widely discussed at that time. https://www.wsj.com/articles/irs-wants-facebooks-records-on-transfer-of-assets-to-ireland-1467923716?mod=article_inline https://www.wsj.com/articles/irs-wants-facebooks-records-on-...
- dang 7y ago
  Discussed at the time on HN: https://news.ycombinator.com/item?id=12193216 https://news.ycombinator.com/item?id=12193216
- riazrizvi 7y ago
  So it is clearly not politically motivated, and is just a court case going through the motions since 2011. Here's another article without a paywall from 2018: https://www.forbes.com/sites/kellyphillipserb/2018/05/16/facebook-loses-bid-to-move-7-billion-tax-case-to-appeals/#3a3342f67f99 https://www.forbes.com/sites/kellyphillipserb/2018/05/16/fac...
dang 7y ago
We changed the URL from https://www.foxbusiness.com/technology/facebook-faces-tax-court-trial-over-ireland-offshore-deal https://www.foxbusiness.com/technology/facebook-faces-tax-co... to one with the same text and no autoplaying video.
- Sabinus 7y ago
  Thank you very much.
- MeltySmelty 7y ago
  aka we hate certain outlets and don't want to drive them views. keep it up, dang ;)
  - dang 7y ago
    That's not it. There have been plenty of submissions from that site (https://news.ycombinator.com/from?site=foxbusiness.com https://news.ycombinator.com/from?site=foxbusiness.com) and plenty of major threads: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=foxbusiness.com%20points%3E30&sort=byDate&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que... We don't care about site quality, we care about article quality: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%20%22article%20quality%22%20%22site%20quality%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu.... Most major media sites have some good articles and many bad articles, in HN's sense of good/bad, so nearly all of those get mildly penalized on HN: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=by%3Adang%20sites%20penalize&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que.... But there are plenty of ways for that penalty to get overridden by software or users or moderators.
josh1 7y ago
F*ck Zuck.
raphaelj 7y ago
What would be the alternative to the current taxation scheme of digital goods? Could we imagine the tax rate being weighted by the revenue made in a specific fiscal area? Lets say that if FB makes 40% of its revenue in the US where the corporate tax rate is 27%, the IRS could tax FB profits at a 11% rate (27% x 40%).
- toyg 7y ago
  You still have the issue of who collects. The UN or (better, maybe) WTO should broker an international framework for digital tax enforcement.
  - big_chungus 7y ago
    Okay, but if I'm producing widgets, every widget I produce is transported over roads and uses public resources. So you can make the argument that because each transaction uses those, a sales tax is justifiable. On the other hand, if I'm serving web pages, the marginal cost in public resources of each new page is zero. Is there any reason for taxing those other than "wanting a piece" of that?
    - sorokod 7y ago
      Is serving pages what FB does?
      - big_chungus 7y ago
        Basically, yeah. It's just a web app. Unless that was supposed to be taken as Socratic and you think it does something more?
        sorokod 7y ago
        I guess it was somewhat socratic. Monetary value is being extracted from UK users. Presumably that value would have not existed without physical,legal, political etc. infrastructure maintained by the state.
rdlecler1 7y ago
These tax dodges are corporate shenanigans, and to me it’s no different than tax evasion.
- bilekas 7y ago
  But if you as a citizen owe 1000USD, you'll be pursued more. Its completely messed up, but that's the current rules of the system. Without going into politics, they play by the stretched rules.
  - ngngngng 7y ago
    It's because of the golden rule. He who has the gold, makes the rules.
    - suifbwish 7y ago
      You are wrong. He who has the guns and the men to use them makes the rules. Gold can be seized, guns must be fought for
      - mlrtime 7y ago
        historically gold buys guns (armies)
        vernie 7y ago
        Gold guns that shoot gold bullets
        suifbwish 7y ago
        Guns and armies allow you to take gold
      - paganel 7y ago
        > He who has the guns and the men to use them makes the rules. The good old monopoly of violence. Too bad Max Weber is not in the public discussion as much as he should be, he “guessed” a lot of things too damned right in his “Economy and Society”, imho it is the defining book of our modern society, with Marx’s “Capital” a close second.
bilekas 7y ago
The number is big, but simular to when they faced the 5Bn file for antiprivacy in SF also, it's not that big of a deal for Facebook. In 2019, Facebook's revenue amounted to 70.7 billion US dollars, up from 55.8 billion U.S. dollars in the previous fiscal year. Thats revenue. https://www.macrotrends.net/stocks/charts/FB/facebook/revenue https://www.macrotrends.net/stocks/charts/FB/facebook/revenu...
- lm28469 7y ago
  9B out of 70B revenues is a pretty big deal imho, what about profits ?
  - tyfon 7y ago
    Net income for 2019 was ~18 milliards (or billions for you Americans) so it's half of that!
    - samatman 7y ago
      All English-speaking countries have adopted the short scale. Since we're not using French, it's 18 billion. Or you could follow SI recommendations and say 18G$. Pretty sure this crowd would know what you mean.
      - tyfon 7y ago
        I should stop making jokes on this site :p
        samatman 7y ago
        I dunno, I thought 18G$ was funny... ymmv
- tyfon 7y ago
  I wouldn't call 12% of the annual revenue "not a big deal". I'm pretty sure if I told my boss that my tax plan just cost us 12% of the annual revenue I'd be out on the street in a jiffy!
skrowl 7y ago
Facebook made $70B in 2019. This fine amounts to about 7 weeks of their time. During the time it takes for the trial / etc, they'll make enough money to pay the full fine. That's just revenue, obviously they'll have other expenses... but still, this isn't as large of a hit to them as $9B sounds.
- juandazapata 7y ago
  $70B revenue, $18B income. That $9B is half of the net income of a full year. I would say that's a hefty hit.
- objclxt 7y ago
  > Facebook made $70B in 2019. This fine amounts to about 7 weeks of their time. You're talking about revenue, not income. Facebook's income in 2019 was $18.5 billion. It would be a substantial hit.
- Hamuko 7y ago
  The article doesn't have any figure on a possible fine.
the_watcher 7y ago
Is there a reason why Mike Schroepfer is being called to testify? Boz makes sense given that he ran ads for years, Naomi Gleit and Javier Olivan led parts of the growth team for years, but Schroepfer is the CTO. Not entirely sure why he'd be called while Sheryl Sandberg isn't (or any number of people who actually worked directly on revenue)?
- jlmorton 7y ago
  Probably because the tax avoidance scheme involves shifting intellectual property and technology to overseas subsidiaries and then charging the parent company a large royalty. Schroepfer would be asked to testify about the actual source and work product that led to the intellectual property transferred to the Irish subsidiary.
  - the_watcher 7y ago
    Got it, that makes sense. Thanks.
alehul 7y ago
To those mentioning that Facebook's revenue is $70b: their net income is only around ~$18b. This would be half of Facebook's net income for an entire year, which is substantial. It's a big deal to them.
- bryanrasmussen 7y ago
  yes but it's my experience that revenue can be played with to determine the net income you find preferable, generally for tax purposes.
  - bilekas 7y ago
    This happens more frequently than outright evasion.
- akerro 7y ago
  That's what the point of punishing companies for hiding money in tax heavens is. If they got fined $10M it wouldn't be much newsworthy
  - Hamuko 7y ago
    Making someone pay the taxes they owe is not a punishment.
    - mam2 7y ago
      making them pay for the crime is though
    - mech1234 7y ago
      I doubt facebook committed a crime here. The right way to address tax avoidance is to change the law, not to punish companies that comply with the law through arbitrary levels of complexity. Even if everyone in the room is aware that facebook is practicing avoidance, avoidance is still legal and categorically different than evasion. Now- The right way to figure out whether this was a crime seems to be by examining the fair value of the intellectual property sold to Facebook's Irish subsidiary. I hope the discussion here can center around this.
pbiggar 7y ago
> "Facebook Ireland and Facebook’s other foreign affiliates - not Facebook US - led the high-risk, and ultimately successful, international effort to sell Facebook ads,” the company said in a pre-trial memorandum. This is hilarious! Does anyone really believe the pretense that these are multiple different companies?
- jlmorton 7y ago
  The US should have a tariff on intellectual property royalty payments from wholly-owned foreign subsidiaries of American companies.
  - Mirioron 7y ago
    This seems like it could actually work. If you made this tariff equal to the corporate tax rate then won't you generate the same amount of taxes?
- Hamuko 7y ago
  I have hard time believing that selling Facebook ads is a high risk (at least from a financial standpoint, maybe from a democratic standpoint yes) effort. In 2010, Facebook had 500 million monthly users and there wasn't even any kind of a serious privacy legislation like GDPR to curtail Facebook's plan on monetizing user data. I can't imagine there were many executives at Facebook losing sleep over this.
drummer 7y ago
Not a fan of Facebook but IRS are criminals. Taxation is theft and slavery. Good on Facebook to avoid getting robbed.
iooi 7y ago
Doesn't almost every multinational use this arrangement, commonly known as the Double Irish? Why is Facebook getting called out specifically? Surprised the article doesn't mention this. https://en.wikipedia.org/wiki/Double_Irish_arrangement#Multinationals_that_used_Irish_BEPS_tools https://en.wikipedia.org/wiki/Double_Irish_arrangement#Multi...
- bretpiatt 7y ago
  Extra large multinationals such as FB, AAPL have negotiated special tax incentive packages beyond the standard Double Irish. Apple dealt with the EU over this in 2016 https://en.wikipedia.org/wiki/EU_illegal_State_aid_case_against_Apple_in_Ireland https://en.wikipedia.org/wiki/EU_illegal_State_aid_case_agai...
- throwaway55554 7y ago
  > Why is Facebook getting called out specifically? As opposed to rounding them all up at the same time? Maybe it's just easier to go after one at a time?
  - rtkwe 7y ago
    Yeah the IRS budget has been intentionally slashed over the years to make their job enforcing the tax code harder. It's part of why they go after low return audits on low or middle income people so much more than against corporations and the rich, rich people and corporations have the money to hire lawyers to draw out cases where poorer people don't so auditing 10 Etna's is 100x easier than going after a company with a complicated tax evasion scheme.
- alpha_squared 7y ago
  I recall reading that because of how much the IRS budget has gotten smaller, they have a harder time pursuing many of the larger violations (such as this) which can be very complex to investigate. A consequence of that is when they can pursue something like this, they need to create some big headlines to show the public their value (and hopefully get a budget increase) while keeping other bad actors in check.
- 7y ago
deleted 7y ago
[deleted]
m0zg 7y ago
Zuck is being brought to heel before the election.
- throwaway55554 7y ago
  Really now? Social media played a large part in the election of the current regime, so why would they go after FB?
  - m0zg 7y ago
    Why do you think it's the "current regime" that's going after FB? Before Barr, the "current regime" couldn't even launch investigations into fake "dossiers" and things of that nature, and this stuff with FB started back in 2016. Could be the deep state. Could, in fact, be both, competing with each other. Not being able to control public opinion is a pretty terrible thing for all of them. In the good old days you could resolve all this shit quietly by having a few conversations with the owners of the "free" press. Nowadays Zuck is less compliant.
    - dboreham 7y ago
      Typo: fake "investigations" into dossiers.
      - m0zg 7y ago
        But the dossier was literally fake, and moreover, paid for by the Clinton campaign.
        karatestomp 7y ago
        Is Steele's dossier what we're talking about? What I'm finding squares with my understanding that almost all of it's 1) pretty solidly corroborated, or 2) isn't confirmed but is plausible as supported by surrounding events, often with a lot of smoke-but-no-as-yet-discovered-fire sorts of public info surrounding it. Where's the info so thoroughly discrediting its claims that it makes sense to call the whole thing "fake"? Again, what I'm seeing (normal-ass sites and Wikipedia, not like The Nation or something, if that's a concern) strongly supports pretty much the polar opposite of that, and even a fairly strong refutation of much of that would still leave so much that labelling the whole thing "fake" would be unfair. What's up?
riazrizvi 7y ago
Surely this is more about political coercion than tax? Amongst all US companies that offshore profits, including the likes of Halliburton, Facebook has been singled out because the US administration wants the company to do it's bidding regarding policy and algorithms for political advertising? Especially considering all the other political reprisals and pardons that are in the news, following the impeachment acquittal. I expect this story to quietly disappear, or some mild fine to result, followed by a not-so-mysterious tweak to how political advertising is handled on the platform. I don't expect it reduce large corporation tax evasion as much as people are crowing here.
- kaliali 7y ago
  Damned if you do, damned if you don't. Might as well get $9 Billion to go with it.
- linuxftw 7y ago
  > US administration wants the company to do it's bidding regarding policy and algorithms for political advertising? Unfounded conspiracy theory? Just because they haven't gone after other companies, doesn't mean they shouldn't go after Facebook. They might believe the other companies are guilty but don't have enough evidence to win the trial. Facebook is clearly a US company. Founded and HQ'd in the US, so they should be paying US taxes.
  - harryh 7y ago
    Facebook does pay US taxes. That is not in dispute. But facebook does business all over the world. The question is about the proper handling of overseas income. How much of that should face local tax rates vs US tax rates? It's a complex area of tax accounting and there are a lot of judgement calls to be made. This lawsuit is about one of those judgement calls.
  - deleted 7y ago
    [deleted]
  - speleding 7y ago
    > Facebook is clearly a US company. Founded and HQ'd in the US, so they should be paying US taxes. If most of the advertisers are outside the US, most of the users are outside the US, and most of the servers are outside the US, I think you will agree that it's not reasonable to say ALL of the profit should be taxed in the US. Which part of the profit should go where is an endless debate among pundits, politicians and academics.
cft 7y ago
Curiously, I can't find it neither in CNN business nor in CNN tech, at least on mobile.
sixhobbits 7y ago
People looking at their personal income tax return: Woah, this is more complicated than I expected - should probably pay a professional accountant to sort this out for me People reading news articles like this: Look at these stupid professionals arguing about how international tax law in the $XB range when one side is so obviously wrong, and the correct outcome is really straight forward.
- mdszy 7y ago
  It's almost like the expectation that companies pay proper taxes to the countries they exist in IS pretty straight forward.
  - pbalau 7y ago
    But really is not, since FB exists in US, UK, Ireland, Israel, France and many other places (see [0]). And not all the value was created in the same place. You could have (and I know examples) a piece of tech being developed in US and not make any money until a team in London picks it up, tweaks the crap out of it and makes some millions. And you need to note that engineers in London are employees of Facebook UK, a different legal entity than Facebook US. Then there are sales and solutions (custom tech built for various customers). The point is, attributing wealth to a particular area is not that clear cut. And I guess this is what this lawsuit is all about, figure out how to do that. [0] https://www.facebook.com/careers/locations/ https://www.facebook.com/careers/locations/
    - ska 7y ago
      While this is clearly true in general, it's exceedingly unlikely that attributing wealth mostly in the places where it is taxed less is really supported by the types of interactions you are talking about. International development is complex, sure, but let's not pretend particularly with respect to Ireland that corporate structuring for tax avoidance isn't actually most (by $, not effort/people) of what is going on in practice.
- jjoonathan 7y ago
  If a professional accountant told my buddy to do one weird trick to completely eliminate the lion's share of his tax liability, and he did it, and then the IRS went after him, I'd feel entirely comfortable judging both my buddy and his accountant, even if I didn't know the precise details.
Shorel 7y ago
Facebook converts to scientology.
markus_zhang 7y ago
Time they do something about those offshore profits...Of course this is probably just a political move, but again everything on that level is political...
freddref 7y ago
Large corps can afford to figure out ways around the tax law internationally, while countries take a long time to legislate internationally. Easier for states to retaliate by suing, or otherwise fining, like google in the EU https://www.wired.com/story/eu-hits-google-third-billion-dollar-fine-so-what/ https://www.wired.com/story/eu-hits-google-third-billion-dol... potentially cheaper than paying taxes?
Stranger43 7y ago
I am willing to bet Facebook did not pay Irish taxes on US income, but failed to pay US tax on non-us income, which is a different thing, as the US have signed treaties with the EU preventing them from taxing revenues that an company have already paid taxes on in Europe, so the IRS suing Facebook from headquartering in Ireland would be an severe treaty violation and is likely not what is happening in the real world despite it being an obvious angle for fox to try and push to their audience. The problem with Facebook/Google taxation(the EU is even less happy about it) is that is that by moving the money through Ireland(who dont tax corporate transaction, only Irish revenue) the profits end up in limbo somewhere in the Atlantic where nobody gets to claim taxes on them. It is essentially the reverse of what the EU is suing apple over as apple insists that their profits is taxable in the US despite not paying tax on their IP related profits in California.
- throwawayhhakdl 7y ago
  if Ireland isn’t taxing the revenues, then it’s not a break of the treaty for the us to tax them. No?
detritus 7y ago
I'm curious to know how this gels with the Trump administration's recent criticism of European countries trying to claw back tax based on revenue generated in their countries... .
underthensun 7y ago
Does anyone here agrees we would be better off with anarcho-capitalism system?
LyalinDotCom 7y ago
Reality is companies know that even if they have to settle in court they still save BILLIONS. Companies can't loose until laws drastically change here.
harry8 7y ago
Does anyone else feel weird to be rooting for the IRS? We tend to get smashed if they suspect our deductions was only 85% kosher. Facebrick, goog, apple, amazon, yeah. Focus there and everywhere there are overseas tax-dodges with high priced lawyers and accountants.
TheRealPomax 7y ago
Why would the IRS have to sue? They're the IRS, they have the authority to levy backtax and if Facebook doesn't like it, _they_ get to sue.
mzs 7y ago
key bit, many comments here instead are unrelated speculation >The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010…
mirimir 7y ago
Huh? Hasn't everone know that for years? Maybe a decade?
greycol 7y ago
The main issue I see with all these tax avoidance measures is they are all based on not realizing profits in the tax year they were earned (and realistically it'll become tax evasion in spirit if not by legal definition when a future govt lowers taxes or offers amnesty). Obviously a short comment isn't going to have the rigor needed to solve such a complex problem or figure out appropriate exceptions. Having said that I honestly believe appropriate governance laws that recursively apply to subsidiary and owned companies would be a very effective (even if not perfect way) for a single country to start realizing tax on their multi-nationals before the much slower wheels of international agreements can grind the problem away. My poorly thought out solution is along the lines of: Any company owning shares in another must attempt to vote every year that that the subsidary (or just invested in company) company pays out a dividend proportional to net profit and 3rd party investment since the last such passing vote. Any subsidiary incorporated by this company must apply these rules and any investment in the company is taxed when the subsidiary incorporates or buys stock in another company. They must also attempt to vote that any company they have shares in follow these same rules. No temporary transfer of shares or proxy appointment should effect the outcome of these mandated votes. I'm sure there are issues with my implementation of this idea such as longer planning of a warchest for growth or perhaps intuitive structures such as a subsidiary that manages all international subsidiaries but it was more to highlight a particular structure than to be exhaustively tuned.

208 points by swat535 7y ago

Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion.

ColanR 7y ago
It's definitely a worthwhile question - whether facebook actually broke the rules, or whether the IRS just wants blood.
teej 7y ago
It sounds like a standard “double Irish” tax scheme. It’s possible FB did the same thing as everyone else and the IRS is just going after one of the big fish to get case law in their favor. If that were to happen, they’d potentially get to go after everyone else who has done it, like Microsoft, Apple, etc.
cbanek 7y ago
Well, I guess it depends on the interpretation of the rules. The point of contention seems to be the valuing of assets, which of course FB has incentive to not value highly: > The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while building out global operations, a move common among U.S. multinationals. Ireland has lower corporate tax rates than the United States, so the move reduced the company’s tax bill. The value of intellectual property is kind of a murky thing, especially before it is fully monetized. So I guess the question comes down to: Did FB executives knowingly undervalue the assets to save money on taxes? Is there a paper trail to that effect?
- SilasX 7y ago
  Part of the problem is, it’s not a legit, best price, arm’s-length, market price. Facebook:Ireland is just a sock puppet for Facebook:USA, and the latter has no intention of selling it to a true outsider. OTOH, if FB:USA sold the rights to FB:I for $1, knowing it would pay billions to license those rights the next year, I don’t get how that can be a proper valuation, even without a clear price discovery mechanism.
  - AnthonyMouse 7y ago
    The real issue is that "market price" legitimately has an amount of slop in it that can eat the company's entire profit. Suppose it costs $50M in salaries to create intellectual property which is then licensed to customers for $500M. Which one is the "market price"? It was sold for both prices, once by the employees to the company and then by the company to the customers. But the difference is a factor of ten. More than that, the difference can be justified. When the $50M is paid, you don't know whether anybody will buy it. Maybe you'll make a billion dollars, or maybe you'll make nothing and just flushed $50M down the toilet. Or maybe you'll make a profit but the profits are spread over future years whereas the work was paid for immediately, so in an arms length market transaction you would expect the price paid to be discounted for the time value of money. So they pay $50M for something they go on to sell for $500M. Which one is the market price? Both of them. This obviously leaves more than enough slack for chicanery.
    - gamblor956 7y ago
      That is not how IP valuation works. The internal cost is not the measure; the potential or actually sales/licensing value of the IP is the measure.
      - AnthonyMouse 7y ago
        What measure? It's two different transactions that occur under different terms at different times. Suppose some code is written by an independent contractor instead of your employees. The contractor is in San Francisco. The San Francisco office pays the contractor, then does nothing more than immediately sell the rights to the code to the Ireland office for approximately the same amount. You just demonstrated that that was the market price -- the contractor was willing to accept it in an arms length transaction with an independent third party. The Ireland office could have just as well paid the contractor directly. What value is the San Francisco office supposed to be adding that justifies being awarded a significant fraction of the total revenue?
- gimmeThaBeet 7y ago
  IANAL, Retroactively going after the valuation of assets based on success years on is awkward at the least, and dangerous at the worst. FB is right, they were still pretty unproven in 2010. It took nearly 1.5 years after their IPO before they convinced people they could make money. I agree, it seems like they would be looking for evidence of undervaluing. But like, let's say you are discount potential cash flows. I don't even know if FB was profitable in 2010, what kind of projected cash flows are you going to have? I just think that if the governments cared about this so much, they would actually fix this. The double irish is going away, but while the US had a chance to fix stuff in 2018, there's still incentive to offshore IP, and in fact, reinforces the advantage of offshoring production.
  - james1071 7y ago
    You don't need to be a lawyer to understand what this is all about and it certainly isn't hindsight, as you have suggested. The reason why the IRS are challenging FB is that Apple's Irish tax arrangements became public and were very embarrassing to the US authorities, which were revealed not to be applying US law. Now, to the matter of hindsight. The essential point is that the transactions have to be a sham to work. There is precisely no point in selling IP from a US subsidiary to one in Ireland at a fair price. That would just trigger an immediate taxable event in the US for no benefit whatsoever. The transaction is by design intended to sell IP at a large undervalue and the game was to satisfy the US and Irish authorities, both of which were happy to play along.
    - gimmeThaBeet 7y ago
      >There is precisely no point in selling IP from a US subsidiary to one in Ireland at a fair price. That would just trigger an immediate taxable event in the US for no benefit whatsoever. Apparently there is if you want to book your international operations in Ireland without the IRS dragging you to court saying you lowballed them a decade ago. Facebook had a funding round in mid 2009, and mid 2010. The 2009 valuation was $9.8B, and $13.8B in 2010. And this case is solely about their ex-US operations, which they're saying basically didn't exist at the time. I mean it's like if you join a startup, how much are your equity options worth? Does the IRS go back and say your options were worth way more because it turns out you were working at the next Netflix or something?
andrepd 7y ago
It's an exploitation of the rules which isn't illegal but should be, but isn't because of lobbies and special interest groups.
Marsymars 7y ago
I think that if there’s no legitimate business purpose to a particular business activity other than avoiding taxes, it qualifies as tax evasion. If that’s not illegal in your particular jurisdiction, that just means you have legalized tax evasion.
- deleted 7y ago
  [deleted]
- TheSpiceIsLife 7y ago
  I understand what you’re trying to say here. And there’s an argument to be made in the other direction too: everyone should be doing everything they legally can, and where it makes financial sense to exert the effort, to avoid paying any more tax than they have to... because giving money and power to politicians is like giving whisky and car keys to teenage boys.
  - asveikau 7y ago
    > And there’s an argument to be made in the other direction too: everyone should be doing everything they legally can, and where it makes financial sense to exert the effort, to avoid paying any more tax than they have to... I hear this a lot and I kind of disagree with the sentiment. I think it's rooted in petty selfishness. If you have enough money, as these companies surely do, good for you, ok. The attitude that sees any additional proceeds as wasted if they "needlessly" go to governments where it gasp might give other people useful public services ... Seems to have priorities in the wrong place. One must have proper perspective when you see financial success. Petty greed over small percentages of huge incomes is not the way to go. There is value in seeing how lucky you are and being happy with what you have, then subsequently seeing your role in our social system as paying some of that back.
    - Sabinus 7y ago
      Apparently some firms used to be like that. Benevolent societies rather than money making machines. Then globalisation happened and those companies were competed out of the market by aggressive multinationals or low wage countries.
keanzu 7y ago
There's no way to know for sure. If it was clearly illegal and Facebook's lawyers thought they were going to lose they'd settle with the IRS. If it clearly wasn't illegal the IRS wouldn't pursue the case. The courts are needed in the fuzzy area to interpret the law and answer the question - was it actually illegal? Other alternatives: If, for example, the IRS has been pressed into the case by public or political pressure they may pursue an unwinnable legal case to win in the court of public opinion or to give other corporations with fewer legal resources than Facebook pause before they engage in similar.
paulddraper 7y ago
> Is this actually illegal though? At the risk of sounding reductive, that is exactly why it is in court: to figure out if it was illegal.
mikorym 7y ago
> Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion. IMO illegality has a human and personal component too. I understand your question is about whether what they did was legal or illegal. But let me give you an example of something that is "clearly wrong" but sometimes legal. Let us assume that you buy something (or are paid cash) and the amount is $100. If you pay $20 tax, then we say you are taxed at 20% and the amount becomes $80. So far so good. Now let's suppose that you claim back that $20 and you put it in your pocket. You still have the $80 (or the item you bought). So you net is at $100 whether in cash fully or $20 cash and something worth $80. Now, let us suppose that in this scenario the cash was paid to you (I am specialising away from the case where you are buying something). You thus have $100, and effectively there was no tax. Now assume you go back to the tax office and you tell them that you are reclaiming another 20% on top of the 20% you paid and then reclaimed. Now, suddenly you have $120. You got $40 in tax reclaims but only ever paid $20. This is essentially the cum-ex scandal. [1] Once with and once without. The with part is the tax you reclaimed; the without is the tax you reclaimed with no base for it at all. Note that these are not tax credits, it's hard cash! The cum-ex tactic is not always illegal, and this is why I say that legality is sometimes dubious (but not always). The reason why they could steal 50 BILLION EUROS from the German tax office is exactly because 1) the banks were and are in on it and 2) they lobbied for and blurred the lines of legality. Apparently the German tax office still thinks, even today, that claiming $40 after only ever paying $20 somehow makes sense. [1] https://cumex-files.com/ https://cumex-files.com/
- salawat 7y ago
  Mmmm. There must be some epic level shenanigans going on somewhere to make that kind of tax liability recording even possible. A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment. https://www.bloomberg.com/news/articles/2019-09-02/the-german-tax-case-putting-the-entire-finance-industry-on-trial https://www.bloomberg.com/news/articles/2019-09-02/the-germa... If that article is to be believed, I'd suspect there was a bank who needs some serious auditing; because there is simply no way there should be any ambiguity as to who the stockholder of record is at that time; and the issuance of a multitude of "tax certificates" to multiple individuals implies they fundamentally mishandled that particular taxation event. Transactions are atomic, and serial in nature as far as finances go. Automated or manual. They must resolve down to chronological order. This is also part of the reason the Feds hate structuring, and will stamp it out in any form they can get enough information about in order to recognize it. Don't be like these people ever. There is no moral or fiscal imperative to commit or concoct structures/mechanisms capable of becoming or facilitating tax fraud. Hell, this exact kind of chicanery is why AML/KYC/tax law ends up making normal financial service providing such a slog; because every link in the chain is yet another gear in the machine. If it seems like you're having to go through lot of hoops to do a relatively straightforward transfer of value, odds are, you may be taking part in some form of either structuring or other financial engineering. If you think that's a tenable of affairs, have fun, but when it comes back around, don't be surprised if there isn't much sympathy to be found.
MarkMc 7y ago
It should be illegal. The company has a strong incentive to undervalue the asset, and 98% of the time IP assets are transferred to a related overseas party it is to minimize tax. Countries would be better off if they simply did not allow IP assets to be transferred to a subsidiary in a different country. The IP stays in the country where it was created, or else sold on the open market.
tialaramex 7y ago
Some countries have GAAR a General Anti-Avoidance Rule. Exactly how these rules work varies but e.g. the English law version uses a trick called the Double Reasonableness test. This says avoidance is legal IF a reasonable person (such as a juror) thinks that any reasonable person (here a different hypothetical person that the juror may well not agree with) might think that there was some other reason to do what was done besides to avoid tax. For example, tax free savings accounts are often mentioned as "avoidance" in this context, to suggest that it's somehow nonsense to criminalise avoidance. But saving money is a reasonable thing lots of people might want to do anyway even if there was no tax advantage. On the other hand, a scheme in which rich people pay somebody else to pointlessly buy and sell cars at a loss makes no sense - except that they then claimed a large tax discount as second hand car dealers... One of the cleverest parts of the English scheme is that tax advisers, who sell such schemes to the rich for lots of money, are insulated from any penalty for doing so... As long as they tell the tax authorities how their scheme is supposed to work.
DyslexicAtheist 7y ago
tax avoidance is tax evasion for the rich. the only difference is barrier of entry which starts at around 1MM for avoidance (very low). if you're below that and still insist on playing this game, the tools at your disposal will almost always fall under evasion (and be considered a crime).

seibelj 7y ago

I truly wish that the corporate tax rate was 0. Not 25, not 15, but 0%. Then all of this ridiculous nonsense around crony capitalists lobbying for special tax breaks, “double Dutch Irish sandwiches”, and the insane discrepancies between big business and small business in regards to tax games would all go away. Just increase capital gains to match income tax and be done with all of this bullshit. Amazon pays an effective rate of 0% anyways.

andrepd 7y ago
What about closing the loopholes? They're known for decades, why not stamp down, with teeth, on this sort of thing?
- seibelj 7y ago
  There will always be loopholes. Any corporate tax rate above 0% will have carve outs for any number of industries that are favored for any number of reasons. If it was 0, huge swaths of busy-work jobs in law and tax industries would go away. They provide no value to society.
  - andrepd 7y ago
    But in a capitalist system, that which could be good is a problem. Now you have swathes of people who become unemployed. You now probably have to support them with welfare (and without corporate tax revenue to boot :)).
bpodgursky 7y ago
This is a 100% reasonable policy, but it's a really hard sell for people who don't understand how business income actually works, and how the money would be captured by far more functional taxes as dividend income or cap gains. I don't think your comment is going to do well on HN. Maybe leave INCREASE CAPITAL GAINS in all caps. Or, CAPTURE THE SAME MONEY AS DIVIDEND INCOME OR CAPITAL GAINS. Perhaps: IT IS THE SAME MONEY CAPTURED LESS CONFUSINGLY AND LESS PRONE TO CHEATING

300bps 7y ago

Comes down to what was the value of Facebook’s intellectual property when it was sold to its Irish affiliate. The IRS is saying they valued it much too low to their benefit.

deleted 7y ago

[deleted]

avalys 7y ago

The headline is inaccurate - the IRS did not sue Facebook today. This was the first day of the trial. The lawsuit was originally filed in 2016 and widely discussed at that time. https://www.wsj.com/articles/irs-wants-facebooks-records-on-transfer-of-assets-to-ireland-1467923716?mod=article_inline https://www.wsj.com/articles/irs-wants-facebooks-records-on-...

dang 7y ago
Discussed at the time on HN: https://news.ycombinator.com/item?id=12193216 https://news.ycombinator.com/item?id=12193216
riazrizvi 7y ago
So it is clearly not politically motivated, and is just a court case going through the motions since 2011. Here's another article without a paywall from 2018: https://www.forbes.com/sites/kellyphillipserb/2018/05/16/facebook-loses-bid-to-move-7-billion-tax-case-to-appeals/#3a3342f67f99 https://www.forbes.com/sites/kellyphillipserb/2018/05/16/fac...

dang 7y ago

We changed the URL from https://www.foxbusiness.com/technology/facebook-faces-tax-court-trial-over-ireland-offshore-deal https://www.foxbusiness.com/technology/facebook-faces-tax-co... to one with the same text and no autoplaying video.

Sabinus 7y ago
Thank you very much.
MeltySmelty 7y ago
aka we hate certain outlets and don't want to drive them views. keep it up, dang ;)
- dang 7y ago
  That's not it. There have been plenty of submissions from that site (https://news.ycombinator.com/from?site=foxbusiness.com https://news.ycombinator.com/from?site=foxbusiness.com) and plenty of major threads: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=foxbusiness.com%20points%3E30&sort=byDate&type=story https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que... We don't care about site quality, we care about article quality: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%20%22article%20quality%22%20%22site%20quality%22&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu.... Most major media sites have some good articles and many bad articles, in HN's sense of good/bad, so nearly all of those get mildly penalized on HN: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&query=by%3Adang%20sites%20penalize&sort=byDate&type=comment https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que.... But there are plenty of ways for that penalty to get overridden by software or users or moderators.

josh1 7y ago

F*ck Zuck.

raphaelj 7y ago

What would be the alternative to the current taxation scheme of digital goods? Could we imagine the tax rate being weighted by the revenue made in a specific fiscal area? Lets say that if FB makes 40% of its revenue in the US where the corporate tax rate is 27%, the IRS could tax FB profits at a 11% rate (27% x 40%).

toyg 7y ago
You still have the issue of who collects. The UN or (better, maybe) WTO should broker an international framework for digital tax enforcement.
- big_chungus 7y ago
  Okay, but if I'm producing widgets, every widget I produce is transported over roads and uses public resources. So you can make the argument that because each transaction uses those, a sales tax is justifiable. On the other hand, if I'm serving web pages, the marginal cost in public resources of each new page is zero. Is there any reason for taxing those other than "wanting a piece" of that?
  - sorokod 7y ago
    Is serving pages what FB does?
    - big_chungus 7y ago
      Basically, yeah. It's just a web app. Unless that was supposed to be taken as Socratic and you think it does something more?
      - sorokod 7y ago
        I guess it was somewhat socratic. Monetary value is being extracted from UK users. Presumably that value would have not existed without physical,legal, political etc. infrastructure maintained by the state.

rdlecler1 7y ago

These tax dodges are corporate shenanigans, and to me it’s no different than tax evasion.

bilekas 7y ago
But if you as a citizen owe 1000USD, you'll be pursued more. Its completely messed up, but that's the current rules of the system. Without going into politics, they play by the stretched rules.
- ngngngng 7y ago
  It's because of the golden rule. He who has the gold, makes the rules.
  - suifbwish 7y ago
    You are wrong. He who has the guns and the men to use them makes the rules. Gold can be seized, guns must be fought for
    - mlrtime 7y ago
      historically gold buys guns (armies)
      - vernie 7y ago
        Gold guns that shoot gold bullets
      - suifbwish 7y ago
        Guns and armies allow you to take gold
    - paganel 7y ago
      > He who has the guns and the men to use them makes the rules. The good old monopoly of violence. Too bad Max Weber is not in the public discussion as much as he should be, he “guessed” a lot of things too damned right in his “Economy and Society”, imho it is the defining book of our modern society, with Marx’s “Capital” a close second.

bilekas 7y ago

The number is big, but simular to when they faced the 5Bn file for antiprivacy in SF also, it's not that big of a deal for Facebook. In 2019, Facebook's revenue amounted to 70.7 billion US dollars, up from 55.8 billion U.S. dollars in the previous fiscal year. Thats revenue. https://www.macrotrends.net/stocks/charts/FB/facebook/revenue https://www.macrotrends.net/stocks/charts/FB/facebook/revenu...

lm28469 7y ago
9B out of 70B revenues is a pretty big deal imho, what about profits ?
- tyfon 7y ago
  Net income for 2019 was ~18 milliards (or billions for you Americans) so it's half of that!
  - samatman 7y ago
    All English-speaking countries have adopted the short scale. Since we're not using French, it's 18 billion. Or you could follow SI recommendations and say 18G$. Pretty sure this crowd would know what you mean.
    - tyfon 7y ago
      I should stop making jokes on this site :p
      - samatman 7y ago
        I dunno, I thought 18G$ was funny... ymmv
tyfon 7y ago
I wouldn't call 12% of the annual revenue "not a big deal". I'm pretty sure if I told my boss that my tax plan just cost us 12% of the annual revenue I'd be out on the street in a jiffy!

skrowl 7y ago

Facebook made $70B in 2019. This fine amounts to about 7 weeks of their time. During the time it takes for the trial / etc, they'll make enough money to pay the full fine. That's just revenue, obviously they'll have other expenses... but still, this isn't as large of a hit to them as $9B sounds.

juandazapata 7y ago
$70B revenue, $18B income. That $9B is half of the net income of a full year. I would say that's a hefty hit.
objclxt 7y ago
> Facebook made $70B in 2019. This fine amounts to about 7 weeks of their time. You're talking about revenue, not income. Facebook's income in 2019 was $18.5 billion. It would be a substantial hit.
Hamuko 7y ago
The article doesn't have any figure on a possible fine.

the_watcher 7y ago

Is there a reason why Mike Schroepfer is being called to testify? Boz makes sense given that he ran ads for years, Naomi Gleit and Javier Olivan led parts of the growth team for years, but Schroepfer is the CTO. Not entirely sure why he'd be called while Sheryl Sandberg isn't (or any number of people who actually worked directly on revenue)?

jlmorton 7y ago
Probably because the tax avoidance scheme involves shifting intellectual property and technology to overseas subsidiaries and then charging the parent company a large royalty. Schroepfer would be asked to testify about the actual source and work product that led to the intellectual property transferred to the Irish subsidiary.
- the_watcher 7y ago
  Got it, that makes sense. Thanks.

alehul 7y ago

To those mentioning that Facebook's revenue is $70b: their net income is only around ~$18b. This would be half of Facebook's net income for an entire year, which is substantial. It's a big deal to them.

bryanrasmussen 7y ago
yes but it's my experience that revenue can be played with to determine the net income you find preferable, generally for tax purposes.
- bilekas 7y ago
  This happens more frequently than outright evasion.
akerro 7y ago
That's what the point of punishing companies for hiding money in tax heavens is. If they got fined $10M it wouldn't be much newsworthy
- Hamuko 7y ago
  Making someone pay the taxes they owe is not a punishment.
  - mam2 7y ago
    making them pay for the crime is though
  - mech1234 7y ago
    I doubt facebook committed a crime here. The right way to address tax avoidance is to change the law, not to punish companies that comply with the law through arbitrary levels of complexity. Even if everyone in the room is aware that facebook is practicing avoidance, avoidance is still legal and categorically different than evasion. Now- The right way to figure out whether this was a crime seems to be by examining the fair value of the intellectual property sold to Facebook's Irish subsidiary. I hope the discussion here can center around this.

pbiggar 7y ago

> "Facebook Ireland and Facebook’s other foreign affiliates - not Facebook US - led the high-risk, and ultimately successful, international effort to sell Facebook ads,” the company said in a pre-trial memorandum. This is hilarious! Does anyone really believe the pretense that these are multiple different companies?

jlmorton 7y ago
The US should have a tariff on intellectual property royalty payments from wholly-owned foreign subsidiaries of American companies.
- Mirioron 7y ago
  This seems like it could actually work. If you made this tariff equal to the corporate tax rate then won't you generate the same amount of taxes?
Hamuko 7y ago
I have hard time believing that selling Facebook ads is a high risk (at least from a financial standpoint, maybe from a democratic standpoint yes) effort. In 2010, Facebook had 500 million monthly users and there wasn't even any kind of a serious privacy legislation like GDPR to curtail Facebook's plan on monetizing user data. I can't imagine there were many executives at Facebook losing sleep over this.

drummer 7y ago

Not a fan of Facebook but IRS are criminals. Taxation is theft and slavery. Good on Facebook to avoid getting robbed.

iooi 7y ago

Doesn't almost every multinational use this arrangement, commonly known as the Double Irish? Why is Facebook getting called out specifically? Surprised the article doesn't mention this. https://en.wikipedia.org/wiki/Double_Irish_arrangement#Multinationals_that_used_Irish_BEPS_tools https://en.wikipedia.org/wiki/Double_Irish_arrangement#Multi...

bretpiatt 7y ago
Extra large multinationals such as FB, AAPL have negotiated special tax incentive packages beyond the standard Double Irish. Apple dealt with the EU over this in 2016 https://en.wikipedia.org/wiki/EU_illegal_State_aid_case_against_Apple_in_Ireland https://en.wikipedia.org/wiki/EU_illegal_State_aid_case_agai...
throwaway55554 7y ago
> Why is Facebook getting called out specifically? As opposed to rounding them all up at the same time? Maybe it's just easier to go after one at a time?
- rtkwe 7y ago
  Yeah the IRS budget has been intentionally slashed over the years to make their job enforcing the tax code harder. It's part of why they go after low return audits on low or middle income people so much more than against corporations and the rich, rich people and corporations have the money to hire lawyers to draw out cases where poorer people don't so auditing 10 Etna's is 100x easier than going after a company with a complicated tax evasion scheme.
alpha_squared 7y ago
I recall reading that because of how much the IRS budget has gotten smaller, they have a harder time pursuing many of the larger violations (such as this) which can be very complex to investigate. A consequence of that is when they can pursue something like this, they need to create some big headlines to show the public their value (and hopefully get a budget increase) while keeping other bad actors in check.
7y ago

deleted 7y ago

[deleted]

m0zg 7y ago

Zuck is being brought to heel before the election.

throwaway55554 7y ago
Really now? Social media played a large part in the election of the current regime, so why would they go after FB?
- m0zg 7y ago
  Why do you think it's the "current regime" that's going after FB? Before Barr, the "current regime" couldn't even launch investigations into fake "dossiers" and things of that nature, and this stuff with FB started back in 2016. Could be the deep state. Could, in fact, be both, competing with each other. Not being able to control public opinion is a pretty terrible thing for all of them. In the good old days you could resolve all this shit quietly by having a few conversations with the owners of the "free" press. Nowadays Zuck is less compliant.
  - dboreham 7y ago
    Typo: fake "investigations" into dossiers.
    - m0zg 7y ago
      But the dossier was literally fake, and moreover, paid for by the Clinton campaign.
      - karatestomp 7y ago
        Is Steele's dossier what we're talking about? What I'm finding squares with my understanding that almost all of it's 1) pretty solidly corroborated, or 2) isn't confirmed but is plausible as supported by surrounding events, often with a lot of smoke-but-no-as-yet-discovered-fire sorts of public info surrounding it. Where's the info so thoroughly discrediting its claims that it makes sense to call the whole thing "fake"? Again, what I'm seeing (normal-ass sites and Wikipedia, not like The Nation or something, if that's a concern) strongly supports pretty much the polar opposite of that, and even a fairly strong refutation of much of that would still leave so much that labelling the whole thing "fake" would be unfair. What's up?

riazrizvi 7y ago

Surely this is more about political coercion than tax? Amongst all US companies that offshore profits, including the likes of Halliburton, Facebook has been singled out because the US administration wants the company to do it's bidding regarding policy and algorithms for political advertising? Especially considering all the other political reprisals and pardons that are in the news, following the impeachment acquittal. I expect this story to quietly disappear, or some mild fine to result, followed by a not-so-mysterious tweak to how political advertising is handled on the platform. I don't expect it reduce large corporation tax evasion as much as people are crowing here.

kaliali 7y ago
Damned if you do, damned if you don't. Might as well get $9 Billion to go with it.
linuxftw 7y ago
> US administration wants the company to do it's bidding regarding policy and algorithms for political advertising? Unfounded conspiracy theory? Just because they haven't gone after other companies, doesn't mean they shouldn't go after Facebook. They might believe the other companies are guilty but don't have enough evidence to win the trial. Facebook is clearly a US company. Founded and HQ'd in the US, so they should be paying US taxes.
- harryh 7y ago
  Facebook does pay US taxes. That is not in dispute. But facebook does business all over the world. The question is about the proper handling of overseas income. How much of that should face local tax rates vs US tax rates? It's a complex area of tax accounting and there are a lot of judgement calls to be made. This lawsuit is about one of those judgement calls.
- deleted 7y ago
  [deleted]
- speleding 7y ago
  > Facebook is clearly a US company. Founded and HQ'd in the US, so they should be paying US taxes. If most of the advertisers are outside the US, most of the users are outside the US, and most of the servers are outside the US, I think you will agree that it's not reasonable to say ALL of the profit should be taxed in the US. Which part of the profit should go where is an endless debate among pundits, politicians and academics.

cft 7y ago

Curiously, I can't find it neither in CNN business nor in CNN tech, at least on mobile.

sixhobbits 7y ago

People looking at their personal income tax return: Woah, this is more complicated than I expected - should probably pay a professional accountant to sort this out for me People reading news articles like this: Look at these stupid professionals arguing about how international tax law in the $XB range when one side is so obviously wrong, and the correct outcome is really straight forward.

mdszy 7y ago
It's almost like the expectation that companies pay proper taxes to the countries they exist in IS pretty straight forward.
- pbalau 7y ago
  But really is not, since FB exists in US, UK, Ireland, Israel, France and many other places (see [0]). And not all the value was created in the same place. You could have (and I know examples) a piece of tech being developed in US and not make any money until a team in London picks it up, tweaks the crap out of it and makes some millions. And you need to note that engineers in London are employees of Facebook UK, a different legal entity than Facebook US. Then there are sales and solutions (custom tech built for various customers). The point is, attributing wealth to a particular area is not that clear cut. And I guess this is what this lawsuit is all about, figure out how to do that. [0] https://www.facebook.com/careers/locations/ https://www.facebook.com/careers/locations/
  - ska 7y ago
    While this is clearly true in general, it's exceedingly unlikely that attributing wealth mostly in the places where it is taxed less is really supported by the types of interactions you are talking about. International development is complex, sure, but let's not pretend particularly with respect to Ireland that corporate structuring for tax avoidance isn't actually most (by $, not effort/people) of what is going on in practice.
jjoonathan 7y ago
If a professional accountant told my buddy to do one weird trick to completely eliminate the lion's share of his tax liability, and he did it, and then the IRS went after him, I'd feel entirely comfortable judging both my buddy and his accountant, even if I didn't know the precise details.

Shorel 7y ago

Facebook converts to scientology.

markus_zhang 7y ago

Time they do something about those offshore profits...Of course this is probably just a political move, but again everything on that level is political...

freddref 7y ago

Large corps can afford to figure out ways around the tax law internationally, while countries take a long time to legislate internationally. Easier for states to retaliate by suing, or otherwise fining, like google in the EU https://www.wired.com/story/eu-hits-google-third-billion-dollar-fine-so-what/ https://www.wired.com/story/eu-hits-google-third-billion-dol... potentially cheaper than paying taxes?

Stranger43 7y ago

I am willing to bet Facebook did not pay Irish taxes on US income, but failed to pay US tax on non-us income, which is a different thing, as the US have signed treaties with the EU preventing them from taxing revenues that an company have already paid taxes on in Europe, so the IRS suing Facebook from headquartering in Ireland would be an severe treaty violation and is likely not what is happening in the real world despite it being an obvious angle for fox to try and push to their audience. The problem with Facebook/Google taxation(the EU is even less happy about it) is that is that by moving the money through Ireland(who dont tax corporate transaction, only Irish revenue) the profits end up in limbo somewhere in the Atlantic where nobody gets to claim taxes on them. It is essentially the reverse of what the EU is suing apple over as apple insists that their profits is taxable in the US despite not paying tax on their IP related profits in California.

throwawayhhakdl 7y ago
if Ireland isn’t taxing the revenues, then it’s not a break of the treaty for the us to tax them. No?

detritus 7y ago

I'm curious to know how this gels with the Trump administration's recent criticism of European countries trying to claw back tax based on revenue generated in their countries... .

underthensun 7y ago

Does anyone here agrees we would be better off with anarcho-capitalism system?

LyalinDotCom 7y ago

Reality is companies know that even if they have to settle in court they still save BILLIONS. Companies can't loose until laws drastically change here.

harry8 7y ago

Does anyone else feel weird to be rooting for the IRS? We tend to get smashed if they suspect our deductions was only 85% kosher. Facebrick, goog, apple, amazon, yeah. Focus there and everywhere there are overseas tax-dodges with high priced lawyers and accountants.

TheRealPomax 7y ago

Why would the IRS have to sue? They're the IRS, they have the authority to levy backtax and if Facebook doesn't like it, _they_ get to sue.

mzs 7y ago

key bit, many comments here instead are unrelated speculation >The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010…

mirimir 7y ago

Huh? Hasn't everone know that for years? Maybe a decade?

greycol 7y ago

The main issue I see with all these tax avoidance measures is they are all based on not realizing profits in the tax year they were earned (and realistically it'll become tax evasion in spirit if not by legal definition when a future govt lowers taxes or offers amnesty). Obviously a short comment isn't going to have the rigor needed to solve such a complex problem or figure out appropriate exceptions. Having said that I honestly believe appropriate governance laws that recursively apply to subsidiary and owned companies would be a very effective (even if not perfect way) for a single country to start realizing tax on their multi-nationals before the much slower wheels of international agreements can grind the problem away. My poorly thought out solution is along the lines of: Any company owning shares in another must attempt to vote every year that that the subsidary (or just invested in company) company pays out a dividend proportional to net profit and 3rd party investment since the last such passing vote. Any subsidiary incorporated by this company must apply these rules and any investment in the company is taxed when the subsidiary incorporates or buys stock in another company. They must also attempt to vote that any company they have shares in follow these same rules. No temporary transfer of shares or proxy appointment should effect the outcome of these mandated votes. I'm sure there are issues with my implementation of this idea such as longer planning of a warchest for growth or perhaps intuitive structures such as a subsidiary that manages all international subsidiaries but it was more to highlight a particular structure than to be exhaustively tuned.