The US Internal Revenue Service (IRS) said Facebook Inc may have understated the value of intellectual property it transferred to Ireland by "billions of dollars", unfairly cutting its tax bill in the process, according to court papers.
The US Justice Department filed a lawsuit on Wednesday in federal court in San Francisco seeking to enforce IRS summonses served on Facebook and to force the world's largest social network to produce various documents as part of the probe.
The tax authority is examining whether Facebook understated its US income by selling rights to an Irish subsidiary too cheaply.
Doing so could boost taxable profits in Ireland, which has a corporate tax rate of 12.5 percent, and reduce taxable income in the United States which has a rate of at least 35 percent. Facebook denied any wrongdoing.
"Facebook complies with all applicable rules and regulations in the countries where we operate," Anteneh Daniel, a spokesperson for the company, said in a statement.
The complex tax structuring used by big technology companies such as Google and Amazon has prompted governments in recent years to launch a program to rewrite tax rules so that inter-group deals that shift profits into tax havens are no longer possible.
The lawsuit said that in 2010 Facebook Inc sold the rights to exploit the Facebook platform outside the United States and Canada to Facebook Ireland Holdings.
