Facebook hires Baker & McKenzie for IRS battle

The IRS says Facebook may have devalued intangible assets it transferred to its Irish holding company by “billions of dollars”.

Facebook Inc has hired Baker & McKenzie as the world’s largest social network is being investigated by the U.S. Internal Revenue Service (IRS) over possibly minimising the value of intangible assets it transferred to its holding company in Ireland in 2010.

According to a Law.com report, Baker & McKenzie partner Scott Frewing filed court papers on Monday on behalf of Facebook at the US District Court for the Northern District of California.
Frewing’s bio on the Baker & McKenzie site notes that he’s defending technology companies from IRS adjustments of more than $1 billion concerning intangible property transfers, the publication notes. 

Earlier this month, the US Department of Justice sued to enforce IRS summonses served on Facebook which seek to surface documents related to an ongoing probe of Facebook’s 2010 tax liability, a Reuters report noted.

That year, Facebook recorded royalty income from transfers of intangible assets to Facebook Ireland Holdings Unlimited for the rights to exploit the Facebook platform except in the United States and Canada. The holdings company then leased those rights to Facebook Ireland Ltd, Reuters said.
The IRS is investigating whether the assets transferred were unreasonably cheap, which reduced taxable income in the US which has a tax rate of at least 35 percent. Ireland has a tax rate of 12.5 percent.

Also involved in the issue is Ernst & Young which determined the price of the assets in question acting as Facebook’s tax adviser.

"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, according to Reuters.
Facebook said in a statement that it “complies with all applicable rules and regulations in the countries where we operate.”

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