Facebook tax court trial begins over Ireland offshore deal
reuters.com
reuters.com
https://www.wsj.com/articles/irs-wants-facebooks-records-on-...
This would be half of Facebook's net income for an entire year, which is substantial. It's a big deal to them.
Even if everyone in the room is aware that facebook is practicing avoidance, avoidance is still legal and categorically different than evasion.
Now- The right way to figure out whether this was a crime seems to be by examining the fair value of the intellectual property sold to Facebook's Irish subsidiary. I hope the discussion here can center around this.
To me this is the flaw in corporate taxation. I don't think you can ever work around this as long as you allow free trade. It just makes sense to tax them in other ways instead and perhaps simply get rid of corporate taxation itself.
A VAT style tax probably solves that right? It doesn't care how much money you actually make so you can't slip profits out the back door as costs.
If facebook.fr sells adverts to (say) local realtors, and spends a lot of that on its own people, servers, etc, is VAT collected on the entire sales price? (I'm really asking, I don't know how this works.)
Completely agree that for physical goods, collecting tax where they are physically sold to end-users sounds like a great way of avoiding this game of deciding which branch of a company made the profit.
I imagine it would allow the rate to be drastically lower since the tax base would be so much larger. And while megacorps would obviously grumble, it would still be a profitable decision to pay the tax and remain in the US market given how lucrative it is. It would end all these country-to-country shell games once and for all, and would also provide some natural advantage to smaller homegrown companies that haven't gone international yet.
If something similar were applied to the tax on corporate profits, then it would not change much, as the US rate (21% I think) is pretty low by world standards. But there are exceptions, like Ireland (6-12%, IIRC).
But isn't the Irish company a different entity anyway? How far down the chain of ownership / authorized-importer-relationship would such a rule go?
Then, Toyota should only pay taxes in Japan? Or Volkswagen?
With fairly commonsense questions like:
- Was the company formed at Megacorp's behest?
- Is there direct coordination between Megacorp and company leadership?
- Do Megacorp and the company share business infrastructure?
- Does the company share information that would normally be private with Megacorp?
- Does the company take actions that advantage Megacorp over the company itself?
You could at least make it a serious pain in the ass with many potential pitfalls to avoid responsibility in this way.
You -- or in this case, Facebook -- has one interpretation of what is legal, the enforcement agency has another. The court decides and everyone goes forward from there.
You and I can have opinion on whether these various international schemes are legal ways to avoid taxes, but ultimately the law going forward will be the precedent set by this case, and its appeals.
"The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while building out global operations"
That is what IRS is trying to sue, on the ground that Facebook Ireland is now collecting substantially large revenue compare to what it was priced.
To me, trying to compare 2010 Facebook patents cost on revenue generated in 2020 is simply absurd. Patents are per user an per revenue based. Facebook 2020 is way bigger than Facebook 2010.
If it could be shown that facebook intentionally undervalued it in order to make this scheme work better for them, wouldn't the IRS have a case?
There aren't any "correct" way to measure it, but most of these IP are likely on percentage based. Sort of like 5G patents where they collect percentage of revenue. So the value I guess they did in 2010 were calculated based on ( projected ) 2012 ( its IPO ) figure. I think judging by majority of comment most people forgot how Facebook perform after its IPO, how its growth wasn't there, how Facebook Gaming Saved it, and how Mobile Internet ( aka Smartphone ) really took off, how they went to Mobile ( App ) First before the term was hyped by SV, and how it has grown possibly beyond most people would imagine. And that is not just Facebook itself, but also Instagram.
That is why I said comparing the value in absolute terms and not on relative terms doesn't make any sense.
At least that is judging from the limited amount of information given out by this FoxBusiness article. So again lots of assumption involved.
Fill in a suitable analogy with "selling IP to a shell company for a song".
I can't even phantom how hairy a report detailing the above would look like, how long it will take to make and how long it will take to check said report.
You could also argue that is almost impossible to fully check the situation. The people with the skills to check such a report are either working for Facebook, or for a Facebook competitor. Bias either way.
>“Facebook Ireland and Facebook’s other foreign affiliates - not Facebook US - led the high-risk, and ultimately successful, international effort to sell Facebook ads,” the company said in a pre-trial memorandum.
What a fraud.
If they had to, they could scrounge up the $9b.
Turning over a profit of 9Bn, its still after this fine..
Thats still huge. Given their assets, cash on hand etc. I don't think they will lose much sleep.
Anyway they will get away with it. They can afford to.
They will be "expected" to discontinue the behavior the IRS is suing them for. If they do it again, the IRS presumably has cause to sue again.
In a similar vein when a rogue multinational bank is fined up to a yearly profit for some dirty shit, and people celebrate.
The problem with Facebook/Google taxation(the EU is even less happy about it) is that is that by moving the money through Ireland(who dont tax corporate transaction, only Irish revenue) the profits end up in limbo somewhere in the Atlantic where nobody gets to claim taxes on them.
It is essentially the reverse of what the EU is suing apple over as apple insists that their profits is taxable in the US despite not paying tax on their IP related profits in California.
keep it up, dang ;)
We don't care about site quality, we care about article quality: https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu....
Most major media sites have some good articles and many bad articles, in HN's sense of good/bad, so nearly all of those get mildly penalized on HN: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que.... But there are plenty of ways for that penalty to get overridden by software or users or moderators.
Surprised the article doesn't mention this.
https://en.wikipedia.org/wiki/Double_Irish_arrangement#Multi...
And, to get explicitly political for a second, you don't have to look any further than the events of the last few days to see how little interest this administration has in the rule of law.
Disclaimer: I have no idea why this particular thing is happening, what the motives behind it are, etc. Everything above this paragraph in this comment is meant in the general sense. This IRS action seems to fit a pattern, that's all.
Apple dealt with the EU over this in 2016 https://en.wikipedia.org/wiki/EU_illegal_State_aid_case_agai...
As opposed to rounding them all up at the same time? Maybe it's just easier to go after one at a time?
People reading news articles like this: Look at these stupid professionals arguing about how international tax law in the $XB range when one side is so obviously wrong, and the correct outcome is really straight forward.
For example, at various points there have been federal tax credits for installing solar panels on your house or buying certain types of green cars. For a lot of people the credit would exceed their federal tax liability for the year. You're prepared to send them all to jail for that without looking at the details?
However, if your friend's "weird trick" is something like a double Irish [1], then it's not at all clear that the applicable tax laws are intended to be used that way or that your friend's choice to use that loophole is good for anyone but your friend.
As we know the mortgage interest tax deduction was intended to promote home ownership. A lot of people who would have bought a home anyway then go out and take a bigger home loan in order to use the money they would have put down as principal to e.g. buy a car. The tax provision clearly wasn't intended to promote car ownership, so all of those people should be in jail, right?
> However, if your friend's "weird trick" is something like a double Irish [1], then it's not at all clear that the applicable tax laws are intended to be used that way or that your friend's choice to use that loophole is good for anyone but your friend.
Being not at all clear is the circumstance where you most have to look at the details, not where you get to ignore them based on whether you like the accused.
Money is fungible. International profit doesn't have a clearly defined jurisdiction. This isn't trivial. "Do what I meant not what I said" is a cop out. If you want better tax laws, change them instead of pretending the existing ones aren't what they are.
But governments don't actually want to do that, because if you had clear tax laws that caused international corporations to pay more tax for operating in your jurisdiction, that would give them a major financial incentive to move somewhere else. Everybody wants to eat their cake and have it too. Pass laws that let corporations avoid your high nominal tax rates which makes them stay in your country, then get offended when they use them.
That's a red herring. Once he receives the money from the tax break (the reward) in exchange for buying a house (the incentivized activity), what he does with that money is completely irrelevant, unless it somehow involves reducing home ownership.
This is the same general problem as assigning a jurisdiction to profits. Money is fungible. If you take out a $30,000 "home loan" and buy a $30,000 car, did you borrow $30,000 to buy a house or to buy a car? If you pay a million dollars to develop software in the US and then license it for ten million dollars in Europe, do you have a nine million dollar profit in the US or in Europe? Notice how the US is going to want to claim it's in the US and Europe is going to want to claim it's in Europe, and the company is going to want to claim it's wherever the tax rate is lower, but none of that is an answer to the question.
Appealing to popularity wouldn't make it anymore legal than appealing to professionalism.
That's about as legitimate as "the police investigated them, so they must have done something wrong". That kind of argument has huge problems.
I'm about as sympathetic to Facebook here as I am to the people who claim that under the maritime act of 1776 their car is a ship and therefore the police can't arrest them for speeding.
Isn't this the plot to Judge Dredd?
I mean, it's well known that there are leprechauns with massive pots of gold in Ireland, so it's easy to assume they might be an extremely lucrative market for targeted ads for rainbow-dissipaters. If not for the complicated tax code, I'm sure they'd have happily paid more tax.
Deleted comment
Example: Bloomberg is still a legitimate business paper of record despite running that unfounded story about backdoored motherboards. I'd take anything those authors put out with a shaker-full of salt in the future, but Bloomberg is still legitimate.
International development is complex, sure, but let's not pretend particularly with respect to Ireland that corporate structuring for tax avoidance isn't actually most (by $, not effort/people) of what is going on in practice.
> The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while building out global operations, a move common among U.S. multinationals. Ireland has lower corporate tax rates than the United States, so the move reduced the company’s tax bill.
The value of intellectual property is kind of a murky thing, especially before it is fully monetized. So I guess the question comes down to: Did FB executives knowingly undervalue the assets to save money on taxes? Is there a paper trail to that effect?
OTOH, if FB:USA sold the rights to FB:I for $1, knowing it would pay billions to license those rights the next year, I don’t get how that can be a proper valuation, even without a clear price discovery mechanism.
Suppose it costs $50M in salaries to create intellectual property which is then licensed to customers for $500M. Which one is the "market price"? It was sold for both prices, once by the employees to the company and then by the company to the customers. But the difference is a factor of ten.
More than that, the difference can be justified. When the $50M is paid, you don't know whether anybody will buy it. Maybe you'll make a billion dollars, or maybe you'll make nothing and just flushed $50M down the toilet. Or maybe you'll make a profit but the profits are spread over future years whereas the work was paid for immediately, so in an arms length market transaction you would expect the price paid to be discounted for the time value of money.
So they pay $50M for something they go on to sell for $500M. Which one is the market price? Both of them.
This obviously leaves more than enough slack for chicanery.
Suppose some code is written by an independent contractor instead of your employees. The contractor is in San Francisco. The San Francisco office pays the contractor, then does nothing more than immediately sell the rights to the code to the Ireland office for approximately the same amount. You just demonstrated that that was the market price -- the contractor was willing to accept it in an arms length transaction with an independent third party. The Ireland office could have just as well paid the contractor directly. What value is the San Francisco office supposed to be adding that justifies being awarded a significant fraction of the total revenue?
Cost of creation is not a valid measure of the value of IP or intangible products generally, though it can provide a lower bound for physical products.
e San Francisco office pays the contractor, then does nothing more than immediately sell the rights to the code to the Ireland office for approximately the same amount.
The market price is what an independent third party would pay for the IP, not what your other office would pay. And what a third party would pay is based on how much they would be able to monetize the IP for in their own uses or the value they would derive from it (for example, like a process-based IP that increases efficiency).
The Ireland office could have just as well paid the contractor directly.
Maybe they could have. If the idea actually would have originated in Ireland, then they should have contracted the programmer directly, and then they would own the IP instead of the US office. But they didn't. It was the US office's idea to engage the contractor, to tell him what to program, and to evaluate the fruits of his labor. You would need to establish that the idea would just as easily have originated in the Irish office, and generally that's a very difficult to prove.
What value is the San Francisco office supposed to be adding that justifies being awarded a significant fraction of the total revenue?
Because territory matters when you're talking about sourcing income for tax purposes, especially where you're dealing with two related but legally distinct entities in different countries. There are literally millions of pages written about this (see "transfer pricing") because it has been the primary means of tax avoidance and tax evasion by multinationals for the past 3 decades. It is the primary focus of the OECD and (pre-trump) of the IRS and the EU.
Note: if both entities were in the same country, these concerns usually go away because related companies usually file consolidated tax returns (i.e., as if they were a single company), so all of this valuation crap would be rendered meaningless for tax and reporting purposes.
You can only use a sale price to justify a valuation when it's under those circumstances, or a good-faith approximation of such circumstances.
In normal circumstances t would make no sense for FB to take on the risk of hiring a contractor and justify the RoR to shareholders knowing they could only immediately sell for exactly what they paid. That's not how sane businesses operate.
Why not? The San Francisco office doesn't have any monopoly over the contractor. It doesn't have anything the Ireland office wants that nobody else could provide. So what is it doing that justifies it receiving a significant premium?
> You can only use a sale price to justify a valuation when it's under those circumstances, or a good-faith approximation of such circumstances.
How isn't the transaction between employee and employer any different? If there were two otherwise identical jobs doing the same work and one paid more, the employee would choose the higher paying one, so it's not unreasonable in general to assume that what the company paid the employee was the market rate to have that sort of work done.
> In normal circumstances t would make no sense for FB to take on the risk of hiring a contractor and justify the RoR to shareholders knowing they could only immediately sell for exactly what they paid. That's not how sane businesses operate.
But they do know that. The Ireland office is willing to immediately pay them the full amount they're paying the employees, so the US office is taking no risk. No risk, no reward; thin margins are the norm in that sort of transaction.
FB is right, they were still pretty unproven in 2010. It took nearly 1.5 years after their IPO before they convinced people they could make money.
I agree, it seems like they would be looking for evidence of undervaluing. But like, let's say you are discount potential cash flows. I don't even know if FB was profitable in 2010, what kind of projected cash flows are you going to have?
I just think that if the governments cared about this so much, they would actually fix this. The double irish is going away, but while the US had a chance to fix stuff in 2018, there's still incentive to offshore IP, and in fact, reinforces the advantage of offshoring production.
The reason why the IRS are challenging FB is that Apple's Irish tax arrangements became public and were very embarrassing to the US authorities, which were revealed not to be applying US law.
Now, to the matter of hindsight.
The essential point is that the transactions have to be a sham to work.
There is precisely no point in selling IP from a US subsidiary to one in Ireland at a fair price. That would just trigger an immediate taxable event in the US for no benefit whatsoever.
The transaction is by design intended to sell IP at a large undervalue and the game was to satisfy the US and Irish authorities, both of which were happy to play along.
Apparently there is if you want to book your international operations in Ireland without the IRS dragging you to court saying you lowballed them a decade ago.
Facebook had a funding round in mid 2009, and mid 2010. The 2009 valuation was $9.8B, and $13.8B in 2010. And this case is solely about their ex-US operations, which they're saying basically didn't exist at the time.
I mean it's like if you join a startup, how much are your equity options worth? Does the IRS go back and say your options were worth way more because it turns out you were working at the next Netflix or something?
Other alternatives: If, for example, the IRS has been pressed into the case by public or political pressure they may pursue an unwinnable legal case to win in the court of public opinion or to give other corporations with fewer legal resources than Facebook pause before they engage in similar.
At the risk of sounding reductive, that is exactly why it is in court: to figure out if it was illegal.
IMO illegality has a human and personal component too. I understand your question is about whether what they did was legal or illegal.
But let me give you an example of something that is "clearly wrong" but sometimes legal. Let us assume that you buy something (or are paid cash) and the amount is $100. If you pay $20 tax, then we say you are taxed at 20% and the amount becomes $80. So far so good. Now let's suppose that you claim back that $20 and you put it in your pocket. You still have the $80 (or the item you bought). So you net is at $100 whether in cash fully or $20 cash and something worth $80.
Now, let us suppose that in this scenario the cash was paid to you (I am specialising away from the case where you are buying something). You thus have $100, and effectively there was no tax. Now assume you go back to the tax office and you tell them that you are reclaiming another 20% on top of the 20% you paid and then reclaimed. Now, suddenly you have $120. You got $40 in tax reclaims but only ever paid $20. This is essentially the cum-ex scandal. [1] Once with and once without. The with part is the tax you reclaimed; the without is the tax you reclaimed with no base for it at all. Note that these are not tax credits, it's hard cash!
The cum-ex tactic is not always illegal, and this is why I say that legality is sometimes dubious (but not always). The reason why they could steal 50 BILLION EUROS from the German tax office is exactly because 1) the banks were and are in on it and 2) they lobbied for and blurred the lines of legality.
Apparently the German tax office still thinks, even today, that claiming $40 after only ever paying $20 somehow makes sense.
A stock can only have a single holder of record, and only one dividend payment should ever be made to whoever the holder of the stock was at the time of the payment.
https://www.bloomberg.com/news/articles/2019-09-02/the-germa...
If that article is to be believed, I'd suspect there was a bank who needs some serious auditing; because there is simply no way there should be any ambiguity as to who the stockholder of record is at that time; and the issuance of a multitude of "tax certificates" to multiple individuals implies they fundamentally mishandled that particular taxation event.
Transactions are atomic, and serial in nature as far as finances go. Automated or manual. They must resolve down to chronological order.
This is also part of the reason the Feds hate structuring, and will stamp it out in any form they can get enough information about in order to recognize it. Don't be like these people ever.
There is no moral or fiscal imperative to commit or concoct structures/mechanisms capable of becoming or facilitating tax fraud. Hell, this exact kind of chicanery is why AML/KYC/tax law ends up making normal financial service providing such a slog; because every link in the chain is yet another gear in the machine. If it seems like you're having to go through lot of hoops to do a relatively straightforward transfer of value, odds are, you may be taking part in some form of either structuring or other financial engineering. If you think that's a tenable of affairs, have fun, but when it comes back around, don't be surprised if there isn't much sympathy to be found.
Yes you are right with this. I have suggested a way to handle this to my colleagues informally, but I don't work with the tax offices themselves. What I would do is to have each share at the atomic level as you mention to have a serial number. If you reclaim for 100 shares then you need to supply 100 serial numbers.
With regards to the banks, absolutely, they are the critical step in this kind of fraud.
The serial number solution does have one weak point: You can use "unused" serial numbers for your reclaim or you can use serial numbers from someone who lives in a country that does not participate in the bilateral treaty that allows the reclaim. This latter example is also essentially using "unused" serial numbers. Typically there are many billions of dollars of withholding tax that remains unclaimed for whatever reason, sometimes even just ignorance. But at the very least this allows you to be better off than today. The tax offices, if they are competent, can even try to attach each serial number to a person, but there are privacy laws that can prevent this. Another subtle point is that a dividend payment event is not the same thing as receipt of the dividend in your account. Typically, the receipt of the dividend is the critical point that tax offices want, not proving ownership of the dividend. This is why the banks have so much power here. They essentially prove payment receipt, not dividend ownership. The logic is that you can't have had the payment into your account if you didn't have ownership of the dividend. There are also other examples of fraud such as forging the country of residence of the shareholder.
Oh yes, and then lastly: Apparently around 2009 some countries turned a blind eye to cum-ex because they saw it as a way to "boost the recovering economy" by pushing up bank revenues... ¯\_(ツ)_/¯
And there’s an argument to be made in the other direction too: everyone should be doing everything they legally can, and where it makes financial sense to exert the effort, to avoid paying any more tax than they have to...
because giving money and power to politicians is like giving whisky and car keys to teenage boys.
I hear this a lot and I kind of disagree with the sentiment. I think it's rooted in petty selfishness.
If you have enough money, as these companies surely do, good for you, ok. The attitude that sees any additional proceeds as wasted if they "needlessly" go to governments where it gasp might give other people useful public services ... Seems to have priorities in the wrong place. One must have proper perspective when you see financial success. Petty greed over small percentages of huge incomes is not the way to go. There is value in seeing how lucky you are and being happy with what you have, then subsequently seeing your role in our social system as paying some of that back.
For example, tax free savings accounts are often mentioned as "avoidance" in this context, to suggest that it's somehow nonsense to criminalise avoidance. But saving money is a reasonable thing lots of people might want to do anyway even if there was no tax advantage.
On the other hand, a scheme in which rich people pay somebody else to pointlessly buy and sell cars at a loss makes no sense - except that they then claimed a large tax discount as second hand car dealers...
One of the cleverest parts of the English scheme is that tax advisers, who sell such schemes to the rich for lots of money, are insulated from any penalty for doing so... As long as they tell the tax authorities how their scheme is supposed to work.
Countries would be better off if they simply did not allow IP assets to be transferred to a subsidiary in a different country. The IP stays in the country where it was created, or else sold on the open market.
We tend to get smashed if they suspect our deductions was only 85% kosher. Facebrick, goog, apple, amazon, yeah. Focus there and everywhere there are overseas tax-dodges with high priced lawyers and accountants.
Schroepfer would be asked to testify about the actual source and work product that led to the intellectual property transferred to the Irish subsidiary.
Secondly, have you done your research? Surely Facebook is not the only company being targeted by the government right now. I can assure you that, surely there are more.
Thirdly, as much as I might dislike an administration, I won't take the giant, speculative leap as to assume that I know exactly what they're thinking.
Fourthly, if this "quietly disappears", why would you automatically assume the administration's involvement? Again, there are presidents I strongly dislike, but part of remaining objective requires grounding your position in fact. Facebook has world class lawyers. Having worked in the legal field for numerous years, I am more than positive that Facebook has made many things "quietly disappear" on their own.
It's not unfounded in the days of pardons to political donors, political donations to jury members, and firing of whistleblowers and witnesses.
You are allowed to assume bad faith when the entity has time and time again showed bad faith. This is suppose to be one of the detriments to acting in bad faith time and time again.
How long have we been in these "days," would you say?
https://en.m.wikipedia.org/wiki/Federal_pardons_in_the_Unite...
That said, none of the things you mentioned are related to investigating tax evasion.
"Oh, you sneezed on Sally when you were in first grade without apologizing? You must be guilty of armed robbery."
"Secondly, have you done your research? Surely Facebook is not the only company being targeted by the government right now. I can assure you that, surely there are more."
Can you back this up with some factual information? Would love to know more about other companies. Thanks.
Unfortunately, the media loves to scandalize things, throw out big names, and hype-up news. The problem is when people just take it, run with it, and parrot it back in the public square.
Anytime a company rises to the stature of Facebook, the probability that they will come into the government's cross hairs is much higher.
[1] https://www.natlawreview.com/article/airbus-to-pay-unprecede...
The National Review for instance is excellent at fact-checking, but I would not call the NR a factual paper or a paper of record.
There are no rocks on which to build these days (probably ever), just a series of private rides you can choose to be taken on.
MY COMMENT: question / observation / speculation / hypothesis-with-circumstantial-evidence-to-support-speculation / expectation / expectation
YOUR REPLY: assertion / speculation
question / speculation / assertion
personal observation
question / self-evident-assertion / assertion / assertion
The main complaint to my comment was about unsupported speculation, which I don't see, instead I do see it in the reply. I genuinely want to do better if I should.
Also, your breakdown of the encounter is dishonest. You literally said "Surely" it was about political coercion. And you didn't even attempt to mildly address the allegations brought by the government against Facebook. Next time, you might want to use the world "might" or "potentially".
"Amongst all US companies that offshore profits, including the likes of Halliburton, Facebook has been singled out because the US administration wants the company to do it's bidding regarding policy and algorithms for political advertising"
So because other companies do it, it's okay for Facebook to do it -- that's your rationale? Not good, and all I see is a lazy attempt at utilizing "circumstantial evidence" that can't withstand the test of scrutiny. When cracking down on something, the government will almost always start with the big names in the industry to send a message. Why did you overlook that possibility, or why is that possibility less feasible? These are important questions that should've been asked and addressed.
Furthermore, the President has granted somewhere around 25 pardons; about two of those were actually controversial. The rest barely made headlines, and most haven't. You referenced this as part of your circumstantial evidence. Once again, this absolutely doesn't pass the test of scrutiny.
I didn't write your comment -- you did. Which is why I called you out on throwing claims out there, without even the slightest reference to any reasonable evidence. Throwing out overly-confident words and sloppily referencing acquittals, political reprisals, and talking about what you expect to happen is a good representation of an unfounded comment. Airbus just received the largest-in-history FCPA fine by the DoJ, totaling 3.9 billion. Is the President trying to bring them down as well? Maybe to help out Boeing? If I were to say, "Surely this is about helping Boeing", I would need much more than a couple of references to current events.
Lastly, I'm not a lawyer. Good day.
What news are you talking about? Whatever news you're watching is only giving you one perspective on events, so this "observation" is not helpful on its own.
The rest of your comment is similarly rooted in assumptions and speculation borne out of a hostile media's interpretation of recent events, so the conclusions you're reaching are built on a far less sturdy foundation of "evidence" than you may think.
Given this, many actions taken by the Obama administration that would have dominated the news cycle as impeachment-worthy if taken by the Trump administration were simply ignored or brushed aside by the Obama administration's media allies.
However, currently it's not possible to obtain a lot of facts about the inner workings of this administration, since it is effectively above the law in terms of things like subpoenas.
And on top of this, Congress has the power to grant subpoenas. The Supreme Court has affirmed this right since the 19th Century and it's absurd that defenders of the President keep insisting that every subpoena must be fought in court, all the way up to final appeal, in order to be valid. That is expressly not what Courts have said in the past. See: https://www.scotusblog.com/2019/07/cases-and-controversies-c...
Sucks when the other party uses the rules against you.
If you believe you're being attacked by politically motivated partisans, it's your duty to obstruct them by whatever lawful or procedural means available.
It's all just a dog and pony show anyway. The news just want to drum up advertising because they're a dying media. The best way they have found to do that is click-bait political fighting.
This emoluments suit has been going since 2017 and got tossed on appeal via a technicality instead of being evaluated on merits, for example, and it hasn't even gone to SCOTUS yet: https://www.politico.com/news/2020/02/07/appeals-court-rejec...
Then, if you recall FB recent stance on e2e, Barr's and Lindsay's comments, the question of political influence over IRS becomes much less an unlikely proposition.
It does not make it automatically true, but let us not pretend that IRS moves in mysterious ways.
To claim otherwise is to ignore context in which IRS goes after them. It may be completely unrelated, but it does raise questions.
the IRS is famously understaffed, why Facebook? why not Apple? or Amazon? or will they go after them next??
edit: and google?
Also the IRS would definitely go after Amazon instead if it were politically motivated.
[1]: Can't find absolute numbers but US users have 10x revenue per user: https://www.statista.com/statistics/251328/facebooks-average...
amazon is running computing services for the government, which makes me doubt it.
And what about Google?
https://www.latimes.com/business/technology/story/2020-02-13...
Also if FB is being picked out of all large companies by the Trump administration for something like this which most all large companies have been doing for decades it's easy to believe it may be to get FB back in line with the fake narrative of "stop silencing conservatives on FB" which is a narrative that doesn't exist, but has been pushed by Trump admin folks online for a while now.
> Secondly, have you done your research? Surely Facebook is not the only company being targeted by the government right now. I can assure you that, surely there are more.
But, if this administration does have something to do with targeting Facebook, why would they not go after Amazon if this is politically charged? Trump has been vocal about his hatred of Bezos and Amazon, and his base would love to see it. It would be a fairly safe thing to go after, and honestly even I would have trouble being outraged by it as a non-Trump person.
Also, does the IRS need staff to sue an entity? If they wanted to audit Facebook, sure, they would need staff. But in this case, it's a lawsuit. All you need is lawyers. And since lawyers aren't busy doing IRS audits, they probably have a lot more free time to handle billion dollar lawsuits.
Halliburton uses a different scheme. Its assets are physically offshore, though there are R&D and depreciation shenanigans (buy out of American profits, depreciate against onshore expenses, and tax the production where it happens).
Facebook, on the other hand, claims most of its assets, which are principally intangible, live in Ireland. Its American sub is charged massive licensing fees by the Irish sub, thereby shifting away profits.
Legally speaking, apples and oranges.
This is correct. But the fraction of assets which are physical are high for Halliburton and low for Facebook.
Richard Nixon demanded that the IRS investigate his enemies, but the IRS commissioner at the time refused to do so and eventually testified against Nixon on this issue.
What's the difference? It good anyway for the US because it would set an important precedent for future litigation on the matter of profit offshoring.
BUT, on the other hand, IRS has to win this one case and all others will start negotiating. Once this is declared illegal, it's over for all. So they had to pick one case.
What was the "coercion" in 2016 about? Tin foil hats?
We know people read what they want into political media. the content may affect your experience on facebook but Facebook has not been proven to have any effect on the ballots.
Facebook was probably caught in the act. IRS probably found some legal loophole to actually sue facebook and has not yet found one for google, etc. whats more important to the irs? Getting facebook to change its content policies which would have zero effect on this upcoming election given everyone already knows how theyre going to vote, or 9 billion dollars?
That said, I do believe that tackling offshore revenue is a good move.
Unfounded conspiracy theory?
Just because they haven't gone after other companies, doesn't mean they shouldn't go after Facebook. They might believe the other companies are guilty but don't have enough evidence to win the trial.
Facebook is clearly a US company. Founded and HQ'd in the US, so they should be paying US taxes.
It's a complex area of tax accounting and there are a lot of judgement calls to be made. This lawsuit is about one of those judgement calls.
If most of the advertisers are outside the US, most of the users are outside the US, and most of the servers are outside the US, I think you will agree that it's not reasonable to say ALL of the profit should be taxed in the US.
Which part of the profit should go where is an endless debate among pundits, politicians and academics.
Also hard to argue that their campus that houses the majority of their employees in the US isn’t the one generating the IP.
1) The entire issue here is about international revenue not US revenue.
2) Your second point is true but this IP was then sold to a subsidiary. The dispute is about the price paid in this sale, not about the origin of the IP.
Source? 96.75% of the world population is outside the US, of Facebook users it will be a smaller percentage, but it seems highly unlikely that most of the revenue will come from such a narrow base.
[1] https://www.statista.com/statistics/251328/facebooks-average...
Obviously a short comment isn't going to have the rigor needed to solve such a complex problem or figure out appropriate exceptions. Having said that I honestly believe appropriate governance laws that recursively apply to subsidiary and owned companies would be a very effective (even if not perfect way) for a single country to start realizing tax on their multi-nationals before the much slower wheels of international agreements can grind the problem away.
My poorly thought out solution is along the lines of:
Any company owning shares in another must attempt to vote every year that that the subsidary (or just invested in company) company pays out a dividend proportional to net profit and 3rd party investment since the last such passing vote.
Any subsidiary incorporated by this company must apply these rules and any investment in the company is taxed when the subsidiary incorporates or buys stock in another company.
They must also attempt to vote that any company they have shares in follow these same rules.
No temporary transfer of shares or proxy appointment should effect the outcome of these mandated votes.
I'm sure there are issues with my implementation of this idea such as longer planning of a warchest for growth or perhaps intuitive structures such as a subsidiary that manages all international subsidiaries but it was more to highlight a particular structure than to be exhaustively tuned.
Easier for states to retaliate by suing, or otherwise fining, like google in the EU https://www.wired.com/story/eu-hits-google-third-billion-dol...
potentially cheaper than paying taxes?
Could we imagine the tax rate being weighted by the revenue made in a specific fiscal area? Lets say that if FB makes 40% of its revenue in the US where the corporate tax rate is 27%, the IRS could tax FB profits at a 11% rate (27% x 40%).
The UN or (better, maybe) WTO should broker an international framework for digital tax enforcement.
If you sell to / produce in a country, no matter how light your presence is, you still have a duty to pay something towards the general upkeep of such country.
>The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010…
(Granted, I don't understand basically anything about tax law, so maybe this is already a well-defined problem with a well-defined solution.)
As a novice, this feels like an approach that punishes the well-off, who may not expend the resources to structure all assets/liabilities this way, at the expense of the super-well-off who will simply pay multiple other people to re-organize their own financials.
There's no such thing as a negative profit. That's called a loss.
Taxing the income real people get paid from the corporation would be the logical, and much simpler system.
* You can of course also make a decent argument against this :)
All it is is that the legal system decided it would make sense to apply the same laws in some areas to both companies and humans, rather than design completely separate frameworks for each case.
In HN terms: This is code reuse/refactoring.
The people that you are talking about are effectively lobbyists - policy entrepreneurs is the phrase, who appear in the media advocating for policies that benefit their clients.
Humans, on the other hand, all work mostly the same.
Also LLCs operate this way already with pass-through taxes which is why they're used so often in real-estate. It allows for limiting liability and splitting ownership and management without adding a whole new tax basis.
That way you don't have to mess with income reporting, deductions, loopholes, etc. Just pay a % of each transaction directly to the government. Credit card companies and banks could even automate this so it's completely transparent.
Maybe leave INCREASE CAPITAL GAINS in all caps. Or, CAPTURE THE SAME MONEY AS DIVIDEND INCOME OR CAPITAL GAINS.
Perhaps: IT IS THE SAME MONEY CAPTURED LESS CONFUSINGLY AND LESS PRONE TO CHEATING
Taxes are not a moral issue nor do they have a victim. The proposal isn't to eliminate them entirely, only to remove corporate income tax and make it up in other changes for a net win for the economy, and it's perfectly reasonable to discuss.
This is hilarious! Does anyone really believe the pretense that these are multiple different companies?
Its completely messed up, but that's the current rules of the system. Without going into politics, they play by the stretched rules.
A large proportion of the US population commits some sort of low level tax evasion- unreported income, deductions that never happened, personal expenses as business deductions, claiming dependents, etc. The vast majority will never see any enforcement whatsoever. By contrast the returns of a major corporation like Facebook are held up to an extreme degree of scrutiny.
That there is a net overpayment of taxes due to people not claiming deductions, not collecting refunds due etc. etc.
(not sure how true this is, simply something I read).
He who has the gold, makes the rules.
The good old monopoly of violence. Too bad Max Weber is not in the public discussion as much as he should be, he “guessed” a lot of things too damned right in his “Economy and Society”, imho it is the defining book of our modern society, with Marx’s “Capital” a close second.
Is the IRS really auditing people over $1000 in taxes (under $4000 of revenue/income)?
> On the one hand, the IRS said, auditing poor taxpayers is a lot easier: The agency uses relatively low-level employees to audit returns for low-income taxpayers who claim the earned income tax credit. The audits — of which there were about 380,000 last year, accounting for 39% of the total the IRS conducted — are done by mail and don’t take too much staff time, either. They are “the most efficient use of available IRS examination resources,” Rettig’s report says.
https://www.propublica.org/article/earned-income-tax-credit-...
> Since Smick, who is taking classes toward a bachelor’s degree, and her husband, a chef, together earned around $33,000 in 2017, about $2,000 of that refund would come from the earned income tax credit. [...] But no refund came. Instead, she got a letter from the IRS saying it was “conducting a thorough review” of her return.
https://www.propublica.org/article/whos-afraid-of-the-irs-no...
> the same year that Facebook started moving profits to Ireland, the IRS launched a team to crack down on deals like that. The effort started aggressively. [...] But shortly after the IRS showed this new ambition, Republicans in Congress, after taking the House in 2010, began forcing cuts to the IRS’ budget. Over the years, as Facebook grew into one of the world’s largest companies, with 2 billion users, the IRS was shrinking. By the time the IRS finally took on Facebook over its Irish deal a few years later, the agency was in over its head.
Once it gets into 7-8 figures, you can VERY easily pay proportionately less than the poor suckers caught in the 10-500K net.
If the IRS wins their suit then it will be shown to be no different than tax evasion in this case though :-)
But the reason to go after FB now would be to keep them in line. Facebook, which has an effective monopoly, understands the number one threat to their income and wealth is regulation. That's why they've just started telling people how they should be regulated. Doing things that are menacing but not immediately consequential is a great way for authoritarians to tilt things in their favor.
In 2019, Facebook's revenue amounted to 70.7 billion US dollars, up from 55.8 billion U.S. dollars in the previous fiscal year.
Thats revenue.
https://www.macrotrends.net/stocks/charts/FB/facebook/revenu...
Since we're not using French, it's 18 billion.
Or you could follow SI recommendations and say 18G$. Pretty sure this crowd would know what you mean.
During the time it takes for the trial / etc, they'll make enough money to pay the full fine.
That's just revenue, obviously they'll have other expenses... but still, this isn't as large of a hit to them as $9B sounds.
You're talking about revenue, not income. Facebook's income in 2019 was $18.5 billion. It would be a substantial hit.