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Comment by rm999 | Hacker News Reader

>The IRS claims Facebook’s tax adviser Ernst & Young LLP undervalued the company’s property as it was transferred to Facebook Ireland Holdings Ltd. by evaluating pieces of the online platform separately, according to court filings ... “I don’t think Facebook is necessarily hiding anything, but it’s a fight over pricing,” said Stephen Hamilton, a tax lawyer in Philadelphia. “This is what companies do when they transfer their own assets; they try to value them as low as possible and when the issue is litigated, they usually end up somewhere in the middle."

It's kind of sad that a team of E&Y accountants and lawyers have probably added more "value" to Facebook by playing this legal tax evasion game with the IRS than an entire team of developers and product managers adding a big new feature.

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Yes, but without those developers there would be no facebook :) (pat yourself on the back)

E&Y denies yet another country tax income. When are govts going to blacklist these guys from govt contracts?

The UK was supposed to be excluding such companies.

Ireland has nothing to do with the UK.

Accountants and Lawyers end up doing value addition because government regulations are far too complex.

Nope. Accountants and Lawyers end up doing value addition because corporations like Facebook take things to the legal gray border of the regulations. The whole double irish is barely useful if you give your assets fair market value. Don't be so gullible to believe this needed to be complex.

Accounting and law firms hire lobbyists to persuade the government to make the law more complex. This is value destruction.

The only reason for Facebook to move assets to Ireland is to take advantage of more complexity in the interactions of multiple legal systems instead of sticking with the relative simplicity of one.

I'm not sure why you put value in scare quotes. By avoiding excessive US taxes, Facebook is now a more efficient company.

That is how taxes work. The government introduces friction into economic transactions, which sucks up some amount of productivity from those who produce value, which the government can then use for its own ends. By moving to a country with more reasonable taxes, Facebook's economic interactions now have less friction and higher efficiency.

This has nothing to do with taxes or business efficiency. The IRS is saying that Facebook undervalued their assets when transferring them to Ireland. It's the implications of that deal that are being discussed

This is 100% about taxes. The only reason the IRS cares about valuing assets is for the amount of tax they can levy on them. And saving $5B sounds darn efficient to me.

I know for sure that if I underdeclare the value of my holdings or my income, I'll be punished when caught, and I don't consider that unfair. I might disagree with the amount I'm taxed, but I don't disagree that I should contribute something to society through paying tax.

The difference as I see it is that companies usually operate as if they believe they shouldn't pay any tax. I realise that minimising tax burden is a form of efficiency, but the challenging part here is deciding where 'efficient' ends and 'dishonest' starts. I honestly don't know, but I'd say it's pretty clear that, at some point, underdeclaring the value of corporate holdings starts being dishonest.

> where 'efficient' ends and 'dishonest' starts

Companies don't know from 'dishonest.' The only question is where 'efficient' ends and illegal starts. Other than that, companies don't care.

(...and even then, in countries with corporate liability protection and simple fines for most corporate crimes, "illegal" is just another name for an economic cost going into the efficiency calculus.)

People think of these issues too much in terms of black and white.

You should think of it as a negotiation. Many transactions, even on a smaller scale, are complex, and deciding on the "true value" is often impossible. So the tax authorities are negotiating with Facebook, and Facebook's report is simply its opening offer. You wouldn't consider a salesmen who overpriced his product to be doing something necessarily unethical (assuming they weren't outright committing fraud or otherwise doing something illegal).

Disclaimer: Not a lawyer or accountant, and I'm totally generalizing here from other transactions I know more about. I actually know almost nothing specific about the US tax system or this situation with Facebook, I'm trying to convey the general attitude that most companies have.

Oh, I absolutely realise I'm oversimplifying it, but the point stands that, in most cases, it's in Facebook's interest to massively underreport value as part of that negotiation.

For example, say they invent a new way of compressing jpegs which saves them bandwidth and storage costs. Facebook could report that as costing them money: "Oh, that cost us $120,000 in programmer time to devise and implement".

It's entirely possible that this is true, but it's only half the picture: that new compression algorithm might have saved them twice that or more in bandwidth costs.

In this instance, it's 'efficient' for Facebook to report one part and then conveniently ignore the other. But the question remains is it honest? Surely the value of that technology is somewhere between the cost to create and the costs it's saved?

It is stealing, if it was intentionally undervalued to avoid a tax.

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