Facebook tax court trial begins over Ireland offshore deal

Why not? The San Francisco office doesn't have any monopoly over the contractor. It doesn't have anything the Ireland office wants that nobody else could provide. So what is it doing that justifies it receiving a significant premium?

> You can only use a sale price to justify a valuation when it's under those circumstances, or a good-faith approximation of such circumstances.

How isn't the transaction between employee and employer any different? If there were two otherwise identical jobs doing the same work and one paid more, the employee would choose the higher paying one, so it's not unreasonable in general to assume that what the company paid the employee was the market rate to have that sort of work done.

> In normal circumstances t would make no sense for FB to take on the risk of hiring a contractor and justify the RoR to shareholders knowing they could only immediately sell for exactly what they paid. That's not how sane businesses operate.

But they do know that. The Ireland office is willing to immediately pay them the full amount they're paying the employees, so the US office is taking no risk. No risk, no reward; thin margins are the norm in that sort of transaction.

The law, tax, business, and reality doesn't work that way. They make policy based on a view of the entire forest, not on the gnarls in a single tree branch.

Territory matters when you're talking about taxing value creation. It always has. If you're arguing against that you're literally arguing against thousands of years against human history. The short answer: it's this way because humankind fought a lot of wars to make it this way, and trying to change it could result in more violence.

How isn't the transaction between employee and employer any different? If there were two otherwise identical jobs doing the same work and one paid more, the employee would choose the higher paying one, so it's not unreasonable in general to assume that what the company paid the employee was the market rate to have that sort of work done.

No, it's not reasonable to make that assumption based on the facts. The employee/business relationship is not related to the value of product created by the employee. This is literally not how any business works. If it was, then most tech startup employees would get paid below minimum wage. FAANG programmer salaries would start in the low millions after a year or two on the job. Mid-level attorneys at most law firms would be making a cool million each year. Backoffice employees at any company wouldn't get paid at all, because they don't contribute to the creation of products.

But they do know that. The Ireland office is willing to immediately pay them the full amount they're paying the employees, so the US office is taking no risk. No risk, no reward; thin margins are the norm in that sort of transaction.

Valuation isn't about what the Irish company would do. Valuation is about how much the IP would be worth on the open market, to unrelated third parties who might not have insider knowledge of the actual cost of creating the IP, and thus who base their offer prices on the value of the IP to their own interests.

More importantly, if the Irish office was always going to reimburse the US office for hiring the US contractor to create the IP, that trail of paperwork says the Irish office was the actual creator of the IP, because the US office was just acting as its agent in hiring the contractor. And that's a very different scenario than what you were originally talking about. (And side note: backdating legal documents to suggest this was the contemplated transaction all along is a crime in both the US and Ireland likely to result in prison time if the IP has any significant value.)

Obviously a short comment isn't going to have the rigor needed to solve such a complex problem or figure out appropriate exceptions. Having said that I honestly believe appropriate governance laws that recursively apply to subsidiary and owned companies would be a very effective (even if not perfect way) for a single country to start realizing tax on their multi-nationals before the much slower wheels of international agreements can grind the problem away.

My poorly thought out solution is along the lines of:

Any company owning shares in another must attempt to vote every year that that the subsidary (or just invested in company) company pays out a dividend proportional to net profit and 3rd party investment since the last such passing vote.

Any subsidiary incorporated by this company must apply these rules and any investment in the company is taxed when the subsidiary incorporates or buys stock in another company.

They must also attempt to vote that any company they have shares in follow these same rules.

No temporary transfer of shares or proxy appointment should effect the outcome of these mandated votes.

I'm sure there are issues with my implementation of this idea such as longer planning of a warchest for growth or perhaps intuitive structures such as a subsidiary that manages all international subsidiaries but it was more to highlight a particular structure than to be exhaustively tuned.

That's a red herring. Once he receives the money from the tax break (the reward) in exchange for buying a house (the incentivized activity), what he does with that money is completely irrelevant, unless it somehow involves reducing home ownership.