08 July 2016
Reporter: Barney Dixon

Facebook IP transfer raises questions

The US Department of Justice (DOJ) has flagged up Facebook’s transfer of intellectual property rights as key to an investigation into the social media platform’s 2010 tax return.

In a petition filed on 6 July, the DOJ asked the US District Court for the Northern District of California to enforce Internal Revenue Service (IRS) summons that were issued in 2013.

The investigation aims to understand a transfer of a large portion of Facebook’s IP rights to a subsidiary in Ireland, along with “certain agreements between Facebook Inc and Facebook Ireland Holdings Limited”.

IRS revenue agent Nina Wu Stone requested that Facebook personnel attend a hearing on 17 June and provide records, papers and other requested data.

But Facebook personnel neglected to attend, spurring the IRS to launch a petition requesting that a court order attendance.

Stone stated in support of the petition that so far, the information gathered, “suggested that the approach to valuing Facebook’s transferred intangibles on a standalone basis was problematic”.

The IRS believes that Facebook US formed Facebook Ireland and transferred IP rights to it to develop the online platform as a social networking website, maximise the number of users, advertisers and developers, as well as the volume and amount of advertising sold, and to maximise profit—”all in countries outside the US and Canada”.

On 27 May 2015, Facebook responded to the IRS examination, rejecting its preliminary position and arguing that “Facebook Ireland had developed its own user-based intangibles”.

In a statement, Facebook said it “complies with all applicable rules and regulations in the countries” in which it operates.

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