Facebook could be liable to pay between $3 to $5bn in extra US tax after an extensive investigation by the US Internal Revenue Service (IRS) into the way the tech company transferred assets to Ireland.
The tax agency has been exploring whether Facebook deliberately deployed complex financial processes designed to minimize the amount of US tax it paid.
The IRS issued the firm with a “statutory notice of deficiency” on 27 July, the company said in its quarterly financial filing, noting that it could have a “material adverse impact” on its finances. Facebook broke out the possible loss in its earnings report, as a minimum of $3bn and maximum of $5bn. It would also be liable for interest lost, though any additional penalties are not known.
On Friday, a Facebook spokesperson said in a statement: “Facebook complies with all applicable rules and regulations in the countries where we operate.”
The IRS began investigating Facebook in 2013 over assets it had transferred in 2010 to its base in Dublin. Ireland is known for its corporation-friendly tax structures; it has a corporate tax rate of 12.5%, compared to the US rate of 35% and 21% in the UK.
The case became public on 6 July when the IRS filed a lawsuit in San Francisco, suing Facebook over access to records related to the transfer. Its 2013 investigation described the valuation of the assets as “problematic”, implying it had undervalued the assets to pay less US tax.
The IRS has stated that Facebook has failed to attend seven appointments at the IRS office in San Jose, 19 miles from Facebook’s headquarters in Menlo Park.
On Wednesday, Facebook announced record quarterly earnings with $6.24bn in advertising sales powered by the popularity of mobile and video.