Facebook has formally informed its investors that it could be on the hook for billions more in back taxes if the Internal Revenue Service’s legal efforts are successful.
This notice comes weeks after federal investigators asked a judge in California to force Facebook to open up its financial and business records for 2010—the year that the social networking giant established a subsidiary in Ireland largely for tax reasons.
Facebook and many other tech firms have recently come under increased scrutiny for using this method to drastically—and legally—reduce tax burdens. The “Double Irish” technique was phased out in early 2015, but companies already using it have until 2020 to transition to something else.
Government investigators accuse Facebook of possibly not charging its Irish subsidiary enough to license its own technology, which has the effect of substantially lowering its tax obligations.
In a Thursday filing with the Securities and Exchange Commission, the company wrote:
On July 27, 2016, we received a Statutory Notice of Deficiency (Notice) from the IRS relating to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year. While the Notice applies only to the 2010 tax year, the IRS states that it will also apply its position for tax years subsequent to 2010, which, if the IRS prevails in its position, could result in an additional federal tax liability of an estimated aggregate amount of approximately $3.0 – $5.0 billion, plus interest and any penalties asserted. We do not agree with the position …