Facebook could be in trouble with US taxman over tax dealings with Ireland
The tax relates to that of intellectual property which was transferred to the Emerald Isle
- The US authority is investigating whether the social network understated its income
Updated : 11:51
Facebook is facing an investigation from US tax authority the Internal Revenue Service, which said that the social network may have understated its income relating to intellectual property transferred to Ireland.
The Justice Department in the US filed a lawsuit on Wednesday demanding that Facebook produce documents to demonstrate its tax bill from the transactions.
With Ireland's low corporation tax of 12.5%, compared with that of 35% in the US, the world's biggest social media site could have reduced its taxable income with regards to the sale.
A spokesman for Facebook denied any wrongdoing.
"Facebook complies with all applicable rules and regulations in the countries where we operate," Anteneh Daniel said in a statement.
The lawsuit said that the rights to exploit the Facebook platform outside the US and Canada were sold to Facebook Ireland Holdings, with the value being determined by Ernst and Young.
"The IRS examination team's preliminary positions suggested that the E&Y valuations of the transferred intangibles were understated by billions of dollars," the lawsuit said.
Facebook Inc in the United States could have licensed its intellectual property directly to Facebook Ireland Ltd but then it would have to report that income in the United States and pay tax there.
Sometimes US companies are able to dodge the low tax rate in Ireland altogether, by designating the entity as a tax resident in a different region.