Facebook could pay up to $14 billion tax if it loses court case

2.5 billion people look at Facebook at least once a month. Photo / 123RF

The US Internal Revenue Service is suing the world's biggest social media site over billions in taxes it alleges the company avoided for years through dodgy licensing deals.

The IRS is chasing $14.1 billion from Facebook.

The lawsuit comes after the "Double Irish, Dutch Sandwich" tax loophole beloved by many corporations was finally closed at the start of this year.

That loophole allowed Facebook and others to minimise their tax obligations by setting up shell companies in a variety of countries and moving money between them until it eventually disappears in the eyes of the taxman.

This is done by assigning the intellectual property of the main company to a subsidiary then paying it licensing fees.

Facebook is being accused of undervaluing the intellectual property it sold to an Irish subsidiary in 2010.

The company's subsidiaries then allegedly paid royalties for the intellectual property rights to a US-based parent incorporated in Delaware, where intellectual property is not subject to taxes.

Facebook stands by the decision according to Reuters.

Facebook spokeswoman Bertie Thomson told the agency the company made the decisions in 2010 when it "had no mobile advertising revenue, its international business was nascent and its digital advertising products were unproven".

Those digital advertising products and their ability to hone in on and aggressively target specific groups are well and truly proven now.

Ads on Facebook and its other apps brought in almost $110.3b in 2019, for a profit of almost $37.8b.

Facebook owns Instagram, WhatsApp, and Messenger in addition to the social media site.

Almost 3 billion people use at least one of them each month.

Only the company that owns Google makes more money selling ads on the internet.