Facebook owes $9B in taxes related to Ireland deal, IRS says

Tax agency says social network undervalued intellectual property sold to subsidiary in 2010.

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Steven Musil
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The IRS says Facebook owes the US government more than $9 billion in unpaid taxes.

Angela Lang/CNET

Facebook is being sued by the Internal Revenue Service, which says the social networking giant owes the US government more than $9 billion in unpaid taxes related to its decision to shift profits to its Irish subsidiary, Reuters reported Tuesday.

The lawsuit, which went to trial on Tuesday in a San Francisco court, alleges that Facebook understated the value of intellectual property it sold to its Irish subsidiary in 2010, the news agency reports. Facebook hardware chief Andrew Bosworth and Chief Technology Officer Mike Schroepfer are expected to testify in the trial, expected to last three to four weeks.

Facebook and other large digital tech companies, including Amazon and Google , are under pressure from countries around the world for not paying what is perceived to be their share of taxes. Ireland is perceived as a popular tax refuge for tech companies because of its relatively low taxes.

Facebook's overseas subsidiaries pay royalties to their parent company for use of its trademark and access to users and platform technologies. Facebook Ireland paid Facebook more than $14 billion in royalties and other payments between 2010 and 2016, according to a court filing cited by Reuters.

Facebook attributed the low valuation to its international expansion, which occurred in 2010 before its IPO and development of some of its more profitable ad products, Reuters reported.

"This trial is about transactions that took place in 2010, when Facebook had no mobile advertising revenue, its international business was nascent, and its digital advertising products were unproven," Facebook's head of communications said in a statement given to CNET. "Our business has had hits and misses but we stand behind the actions taken over a decade ago during a time of great risk and uncertainty for the company. We look forward to presenting our case in court and putting an end to this years-long dispute." 

The IRS didn't immediately respond to a request for comment.