Document Type

Article

Publication Date

2025

Abstract

In this report, the authors explain how the Tax Court’s recent decision in the Facebook transfer pricing case — although widely viewed as a victory for the taxpayer, Meta Inc. — could instead be a Pyrrhic victory because it enables the IRS to pursue a potentially substantial periodic adjustment against the company. The views expressed in this report are solely the authors’ and do not necessarily reflect those of any other person or institution. On May 22 the Tax Court issued its opinion in Facebook. This was the third case, after Amazon and Veritas, in which the IRS tried to substantially increase by multiples a taxpayer’s ex ante cost- sharing arrangement (CSA) buy-in payment, which is now known as a platform contribution transaction (PCT) payment. As in the prior two cases, the taxpayer in Facebook prevailed in eliminating most or all of the IRS’s adjustment. In this case, the IRS had increased Facebook’s September 2010 cost-sharing buy-in payment by more than 300 percent, from a net present value (NPV) of $6.3 billion to $19.945 billion. Judge Cary Douglas Pugh ruled that the buy-in payment was underpriced by only $1.486 billion, largely because of the use of an incorrect method used by the taxpayer and incorrect inputs used by the IRS in its application of the correctly used “income method.”

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Reprinted with the permission of Tax Analysts

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