A multibillion-dollar dispute between Meta and the US Inland Revenue Service (IRS) is signalling a major shift in how the agency targets tax dodges used by big companies that push profits offshore.
After years of struggling to stop firms such as Amazon, Microsoft and Coca-Cola from shifting trillions of dollars to island havens, the IRS is deploying new legal tactics in a court battle with Meta, the owner of Facebook and Instagram. If successful, some tax advisers say, the agency could recover hundreds of billions in taxes from multinationals.
IRS auditors have been pursuing Meta for about a decade, contending the company lowballed the price of trademarks, customer agreements, software licenses and other rights it moved offshore. Their new argument is based on Meta’s overseas profits since then: They say the company failed to report roughly $54 billion (€45 billion) in income and owes nearly $16 billion in back taxes and penalties.
In December, Meta sued the IRS in US tax court, seeking to stop the agency’s efforts. The litigation is one of the biggest such tax battles between the IRS and a company in US history.
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It is unclear whether the new direction of the IRS during the second Trump administration could hinder the effort. The agency has lost more than a quarter of its staff, withdrawn directives to auditors to crack down on aggressive tax shelters and permitted other auditing efforts to falter.
[ US authorities hit Meta with $16bn tax claim related to Irish transfersOpens in new window ]
The new IRS tactics in the Meta case echo the arguments of a tax consultant who testified before the Senate budget committee in 2024. The consultant, Stephen Curtis, argued that provisions in the tax code since 1986 could hinder how companies shifted profits offshore, but that the agency was failing to enforce them.
“The IRS has several tools at its disposal that it has not used, for various reasons, over the past couple of decades,” said Curtis, a former tax adviser at two big accounting firms, including EY, which advised Meta on the strategy the IRS is challenging. (He did not work on the Meta transaction.)
Curtis has published more than a dozen detailed analyses of companies he contends severely undervalued rights moved offshore, including Meta, Google, Apple, eBay, Microsoft and PayPal. He estimates the potential liability for this handful of companies totals nearly $700 billion in back taxes, interest and penalties.#
Google said it disagreed with his assertions. Meta, Apple, Microsoft and PayPal declined to comment, and eBay did not respond to a request for comment. A spokesperson for the IRS also declined to comment.
The dispute in US tax court dates back to a series of tax-cutting strategies that Meta, then known as Facebook, set up in 2010.
Like many big US companies, Meta used an office in Dublin as its European headquarters. The waterfront area has become known as Silicon Docks because of a proliferation of big tech companies. Ireland’s low 12.5 per cent corporate income tax rate, along with its English-speaking, educated workforce, made it a popular headquarters for multinational corporations. (The rate has since gone up to 15 per cent for big companies.)
[ Three US firms paid almost 50% of State’s corporate tax in 2024Opens in new window ]
But an even more important benefit was the ease with which Ireland allowed big companies to shift profits out of the country into places like Bermuda, Grand Cayman and the Isle of Man, further cutting their global income tax bills. Meta licensed the rights to use its intellectual property to an Irish subsidiary that, for tax purposes, said it was managed in the Cayman Islands – which levied no corporate income tax. That entity in turn collected royalty payments from the Dublin unit.
Arrangements like these by Meta, Google, Microsoft and others came to be known as “the double Irish.” In 2014, Irish government officials announced plans to phase out the ability to use that set-up, but existing structures were grandfathered in.
When Meta moved those rights offshore, its Irish unit agreed to pay its US parent about $6 billion for those rights. In theory, that amount equalled the future profit that Meta expected to generate in most overseas markets attributable to the various technologies and business lines already developed in the United States.
Now the IRS is pointing to the reality that, in the years since 2010, Meta earned tens of billions more than its projections.
In court filings, lawyers for Meta say the IRS is trying to take a second bite at the apple. The agency previously contested how the company valued the offshore transfer of those rights. And last May, a tax court judge largely sided with the company. She said Meta had undervalued those rights – but by far less than what the IRS was seeking.
The company is now citing a legal rule, called “collateral estoppel,” that prevents parties from rearguing issues already decided in court – sort of a version of double jeopardy.
Over the years, other governments have challenged aspects of Meta’s offshore tax arrangement, including Italy, Ireland, Britain and Turkey.
The IRS’s current tack – looking at how much profit the company actually earned, not just projections from years earlier – is based on a law enacted in 1986. Regulators had been reluctant to use it because of pushback from industry. In the final days of the Biden administration, however, the IRS issued a memorandum directing auditors to start performing analyses like these on multinational offshore tax strategies. Advisers to companies in IRS disputes say auditors are gradually starting to raise that argument.
Some of the arrangements like the one used by Meta have changed since 2017, when US president Donald Trump signed the Tax Cuts and Jobs Act. While cutting the corporate income tax rate to 21 per cent, the Republican legislation imposed a minimum tax on certain offshore profits. The new law also created a lower tax on domestic profits attributable to exports – in effect carving out a tax haven within the United States for certain types of income. The result is that some companies, including Meta and Google, moved intellectual property back to the United States.
The IRS is also contesting an arrangement involving a Brazilian subsidiary that saved Meta more than $360 million. Auditors claim the arrangement lacked a true business purpose, invoking an “economic substance doctrine” that has been part of the tax code for nearly 16 years. The IRS also rarely used that law, because of restrictions that industry lawyers had lobbied into existence.
One of the main lawyers who successfully pushed for those restrictions, Cary Pugh, is now a US tax court judge. She presided over the previous Meta dispute, ruling largely in the company’s favour last year, and is now overseeing the new matter. – This article originally appeared in The New York Times.
