Loopholes can save companies from tons of taxes that they would’ve had to pay otherwise. However, big tech companies such as Google and Apple have recently found themselves in battlegrounds with the IRS. They aren’t alone either. Yet another major corporation is facing IRS problems. Recently, Facebook has been in a dispute with the IRS over back taxes owed.
Facebook, just like tech giant Apple, established a subsidiary for tax purposes in Ireland. This method is referred to as the “Double Irish arrangement”. After evaluating the platform, the IRS claimed that Facebook’s tax adviser, Ernst & Young LLP, undervalued Facebook’s property while being transferred to Facebook Ireland Holdings Ltd.
The IRS has been working hard to decreasing loopholes and avoid strategies for companies to slip through their fingers. According to reports, the tech giant assigned a value of $5.8 billion on transferred assets in 2010, which doesn’t include intellectual property. However, the investigation led to estimates that are closer to $13.9 billion according to a filing in the U.S Tax Court.
Both parties have been fighting with the auditing process. The Internal Revenue Service claims Facebook has not met with their representatives and has not produced all of the required documents. On the other hand, the tech giant states that they have been fully compliant to the best of their ability with the IRS.
The Agency suggests that Facebook owes $1.7 million in taxes plus interest and penalties for at least the year of 2010. So why is Facebook refusing to pay up? According to Facebook, paying for the undervaluing of their property can lead to losses up to $3 billion to $5 billion before interest and penalties.
However, this Irish loophole is no more. After the year of 2019, huge multinational companies will be forced to find another solution due to the change in the Irish law. Fortunately, this will decrease the chance of a tax dispute for companies. On the opposite side, huge companies lose the opportunity to save massive amounts of money and may have to cough up millions in taxes in order to be in full compliance.