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Legal precedent is a portion of the law. You -- or in this case, Facebook -- has one interpretation of what is legal, the enforcement agency has another. The

Legal precedent is a portion of the law. You -- or in this case, Facebook -- has one interpretation of what is legal, the enforcement agency has another. The court decides and everyone goes forward from there. You and I can have opinion on whether these various international schemes are legal ways to avoid taxes, but ultimately the law going forward will be the precedent set by this case, and its appeals.

ksec 7y ago
There is nothing in the case suggest the international schemes are illegal. Even the IRS is not trying to push for that. "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" That is what IRS is trying to sue, on the ground that Facebook Ireland is now collecting substantially large revenue compare to what it was priced. To me, trying to compare 2010 Facebook patents cost on revenue generated in 2020 is simply absurd. Patents are per user an per revenue based. Facebook 2020 is way bigger than Facebook 2010.
- ska 7y ago
  You latter point doesn't really make sense to me. Isn't it true that a sale of IP should model the value of the IP over its lifetime in some reasonable way? And that would include a growth model for FB, no? If it could be shown that facebook intentionally undervalued it in order to make this scheme work better for them, wouldn't the IRS have a case?
  - ksec 7y ago
    >Isn't it true that a sale of IP should model the value of the IP over its lifetime in some reasonable way? There aren't any "correct" way to measure it, but most of these IP are likely on percentage based. Sort of like 5G patents where they collect percentage of revenue. So the value I guess they did in 2010 were calculated based on ( projected ) 2012 ( its IPO ) figure. I think judging by majority of comment most people forgot how Facebook perform after its IPO, how its growth wasn't there, how Facebook Gaming Saved it, and how Mobile Internet ( aka Smartphone ) really took off, how they went to Mobile ( App ) First before the term was hyped by SV, and how it has grown possibly beyond most people would imagine. And that is not just Facebook itself, but also Instagram. That is why I said comparing the value in absolute terms and not on relative terms doesn't make any sense. At least that is judging from the limited amount of information given out by this FoxBusiness article. So again lots of assumption involved.
    - ska 7y ago
      Agreed, of course there isn't a "right" way. But companies should be internally consistent in how they do these things. So, I can imagine if you (as the IRS) can demonstrate that they used on method of doing this sort of thing for some stakeholders, but another for the sale to Irish subsidiary with no real justification ... you might just have an argument this was for tax avoidance purposes. Also I didn't mean to suggest that absolute value comparison was the right way to do this. Just that it is entirely plausible the FB intentionally lowballed the sale. It's clearly the reason these companies are in Ireland at all. Cases like this I suppose are about defining the line between "fair play" and not.
- saalweachter 7y ago
  It's also legal to claim your home office as a business expense, but most accountants will tell you to be really certain you don't use your home office for non-business use, because of the copious precedent for people getting in trouble when it turns out that their home office was really more of a guest bedroom / sometimes home office / sometimes gaming den. Fill in a suitable analogy with "selling IP to a shell company for a song".

ksec 7y ago

There is nothing in the case suggest the international schemes are illegal. Even the IRS is not trying to push for that. "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" That is what IRS is trying to sue, on the ground that Facebook Ireland is now collecting substantially large revenue compare to what it was priced. To me, trying to compare 2010 Facebook patents cost on revenue generated in 2020 is simply absurd. Patents are per user an per revenue based. Facebook 2020 is way bigger than Facebook 2010.

ska 7y ago
You latter point doesn't really make sense to me. Isn't it true that a sale of IP should model the value of the IP over its lifetime in some reasonable way? And that would include a growth model for FB, no? If it could be shown that facebook intentionally undervalued it in order to make this scheme work better for them, wouldn't the IRS have a case?
- ksec 7y ago
  >Isn't it true that a sale of IP should model the value of the IP over its lifetime in some reasonable way? There aren't any "correct" way to measure it, but most of these IP are likely on percentage based. Sort of like 5G patents where they collect percentage of revenue. So the value I guess they did in 2010 were calculated based on ( projected ) 2012 ( its IPO ) figure. I think judging by majority of comment most people forgot how Facebook perform after its IPO, how its growth wasn't there, how Facebook Gaming Saved it, and how Mobile Internet ( aka Smartphone ) really took off, how they went to Mobile ( App ) First before the term was hyped by SV, and how it has grown possibly beyond most people would imagine. And that is not just Facebook itself, but also Instagram. That is why I said comparing the value in absolute terms and not on relative terms doesn't make any sense. At least that is judging from the limited amount of information given out by this FoxBusiness article. So again lots of assumption involved.
  - ska 7y ago
    Agreed, of course there isn't a "right" way. But companies should be internally consistent in how they do these things. So, I can imagine if you (as the IRS) can demonstrate that they used on method of doing this sort of thing for some stakeholders, but another for the sale to Irish subsidiary with no real justification ... you might just have an argument this was for tax avoidance purposes. Also I didn't mean to suggest that absolute value comparison was the right way to do this. Just that it is entirely plausible the FB intentionally lowballed the sale. It's clearly the reason these companies are in Ireland at all. Cases like this I suppose are about defining the line between "fair play" and not.
saalweachter 7y ago
It's also legal to claim your home office as a business expense, but most accountants will tell you to be really certain you don't use your home office for non-business use, because of the copious precedent for people getting in trouble when it turns out that their home office was really more of a guest bedroom / sometimes home office / sometimes gaming den. Fill in a suitable analogy with "selling IP to a shell company for a song".