4 January 2021TrademarksMuireann Bolger

Facebook moves IP back to US amid tax row

Facebook will repatriate most of its IP from the Republic of Ireland back to the US by liquidating three companies at the centre of a tax dispute about offshore profit shifting, the social media company has confirmed.

The move, announced on December 30, follows accusations by the US Internal Revenue Service (IRS) in February which held that the California-based social media company owed more than $9 billion in tax after it allegedly undervalued its IP assets held by its Irish subsidiaries.

According to the company’s transfer pricing arrangements, Facebook’s Irish holding companies paid royalties to its US parent company for the use of the social media giant’s IP.

In 2010, Facebook valued this IP at about $6.5 billion in filings with the IRS but US tax authorities argued its value could have been as much as triple this amount.

The IRS held that the lower the value Facebook placed on the IP, the fewer royalties the Irish unit would have to pay to the US—leaving more profits in Ireland where it would face lower taxes than in the US, where the profits would be subject to taxes of 35%.

The main Irish company in liquidation, Facebook International Holdings, recorded a $101 million tax charge on $15.2 billion of net profits in 2018, according to a Companies Registration Office filing in Ireland.

In a statement issued to The Times, a Facebook spokesperson said the move was “part of a change that best aligns with our operating structure” and that the holdings of the three subsidiaries were “distributed to its US parent company”.

In November, Facebook, alongside Google, Apple and Amazon agreed to comply with a French tax initiative committing them to making a “fair tax contribution” in countries where they operate.

The French levy saw the firms face tax bills totalling hundreds of millions of dollars on earnings from online sales, digital advertising and the sale of private data.

In the same month, Coca-Cola lost its bid to avoid paying a substantial portion of a $3.4 billion tax bill levied by the IRS, at the US Tax Court.

The case also centred on a dispute around transfer pricing—how the company valued its IP with its affiliate companies operating in Brazil, Chile, Costa Rica, Egypt, Ireland, Mexico, and Swaziland.

WIPR has approached Facebook for comment.

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