Tuesday 6 December 2016

Facebook IRS probe: Five reasons its Irish business is in the spotlight

Published 08/07/2016 | 10:26

facebook bloomberg pic
facebook bloomberg pic

US officials have gone to court demanding answers from Facebook about the tax due when the social media giant moved key assets to Ireland. Here are five reasons Facebook Ireland is in the spotlight:

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Q; What does Facebook’s Irish office do?

A: Facebook's main function here is support for the company's worldwide operations. That means everything from decisions on objectionable content to technical maintenance of the features. 

Dublin is also a key financial centre for the social networking giant, with around half of its multi-billion euro global revenues booked here to take advantage of Ireland's low tax regime. The firm's Irish workforce has grown to more than 1,000 people in the past three years.

Q: What are these assets that the US tax authorities are talking about?

They're "intangible" assets, such as the value placed on Facebook's global audience and its marketing activities. 

The Internal Revenue Service is arguing that these were worth "billions" more than Facebook's submitted figures when it transferred them from the US to Ireland. The IRS is also arguing that because lots of Facebook's activity is designed and controlled from the US, it's not clear that Facebook can separate them out to an offshore entity such as Ireland.

Q: What kind of punishment could Facebook be facing?

A: We don't know. If the IRS investigation concludes that Facebook has underdeclared, to the tune of "billions", its asset transfer from the US to Ireland, the company could face significant financial outlays, possibly as part of a revised IRS audit.

Q: Does it threaten Facebook's future in Ireland?

A: It seems unlikely. Its office is well established in Dublin. To move to another country would be a major logistical headache, especially that the UK is now not an option after its decision to leave the EU.

Q: Is Facebook profitable?

A: Very. Unlike some other big online brands that struggle to make profits, Facebook makes real money. 

Its most recent set of accounts show that the company's profits are tripling each year, with the social networking giant on track to make more than €5bn in profit this year, on revenues of €20bn. 

Facebook gets more new online advertising revenue than all global media companies combined. It takes in around €10 per user in advertising each year through advertising, although the US figure is higher than for European users.

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