EXCLUSIVE: Lawfirm repping FB in $20B tax case is also aiding Oversight Board
By Tatiana Prophet
Baker McKenzie, an elite global law firm, has been representing Facebook in a now 20-billion-dollar legal claim by the IRS at the same time that the firm has been involved in staffing the tech giant’s Oversight Board. While the trial began in February 2020, there has been a veritable news blackout on the courtroom events.
On Wednesday, the Oversight Board ruled that Facebook could uphold its restriction of President Donald Trump’s account for six more months, but cautioned that the company needed a procedure and criteria by which to take action and impose penalties.
““The Board found that the two posts by Mr. Trump on January 6 severely violated Facebook’s Community Standards and Instagram’s Community Guidelines. “We love you. You’re very special” in the first post and “great patriots” and “remember this day forever” in the second post violated Facebook’s rules prohibiting praise or support of people engaged in violence.””
What the Oversight Board statement omits is that on January 6, Trump told the crowd “I know that everyone here will soon be marching over to the Capitol building to peacefully and patriotically make your voices heard.” Newsweek did a fact check on that statement and pointed out, as many have, that Trump also said “we must show strength” and “if you don't fight like hell you're not going to have a country anymore."
Read “Five months later: What we know about the Capitol breach” here.
Specifically, Baker McKenzie is running the Oversight Board member “recommendations portal” by which it enables anyone with a web connection to recommend a person for the board. Whether the firm’s assistance goes beyond tech support is not clear, but since the firm specializes in international business, it’s doubtful their contribution is merely IT. And the law firm’s involvement is not a secret; neither is the potential conflict of interest coming out in the world’s best and brightest media.
There is very little online about Facebook’s relationship with Baker McKenzie, not to mention the IRS case itself. And it’s no small case; it dates back to 2010, when top brands began shifting large subsidiaries to the tiny nation of 4.8 million people in a controversial scheme known as “Double Irish” (there’s also the “Dutch Sandwich).
Ireland has one of the friendliest tax codes in the world - effectively 12.5 percent.. Back in the 2010s, the IRS alleged, Facebook conducted most of its ad business from its Ireland branch — and kept the revenue there as well. The scheme involved selling Facebook’s intellectual property to its Irish holding company — source code, user data, servers and all — and then requiring subsidiaries outside Ireland to pay for the use of that intellectual property. Ad revenue, which has skyrocketed for Facebook since then, was part of the Ireland subsidiary’s revenue, and the IRS claimed it was undervalued for the tax periods in question.
At that time, the United States followed a worldwide taxation model, which required multinational corporations to pay taxes to countries where they earned the revenue, and then turn around and pay the IRS for the same earnings if they are brought to the United States. But after the 2017 Tax Cuts and Jobs Act (TCJA) under President Donald Trump, the U.S. shifted to a territiorial taxation model, thereby incentivizing mega brands to bring their money home.
President Barack Obama had also proposed shifting to the territorial taxation model, thereby closing the “Double Irish” loophole, presumably encouraged by his big business constituents; but progressive think tanks cast doubt on whether it would result in the repatriation of money from overseas. Under the guise of impartiality many media outlets likened the proposal to trickle-down economics because it was basically a way to avoid taxes. However it did result in billions brought back to the United States, whether they were used for stock buybacks or long-term investment. In early 2020 Google transferred all of its intellectual property back to the United States, while earlier this year, Facebook did the same.
And it’s not just the U.S. that wants their taxes paid up; it’s the EU as well. Apple paid $15.4 billion to the European Union in 2018, while Google paid $1 billion to the government of France. As for Facebook, however? There’s very little info on what Baker McKenzie was able to do for its client.
Baker McKenzie has been ranked as the world’s most powerful brand by Legal Cheek’s “Most” lists. It is informally recognized as part of London’s Magic Circle, a term coined in the 1990s by business journalists to indicate the creme de la creme of global business firms. You get the idea.
Back to the Oversight Board. Baker McKenzie’s role is pretty important right now because the board — once named as a Supreme Court by its creator, Mark Zuckerberg — calls for 40 members. Right now there are only 20.
According to the Baker McKenzie-run web portal, Facebook is actively involved in the selection process, and it’s been widely reported that the company has endowed it with a $130 million trust. The Oversight Board will have sole power over member selection once all 40 seats have been filled.
“Facebook and the Oversight Board are looking for additional candidates from around the world who are familiar with matters relating to digital content and governance and have a proven track-record of working with others on difficult problems. To help with the ongoing sourcing of potential candidates, the Oversight Board and Facebook are partnering with the firm Baker McKenzie to allow anyone to put forward the name of a qualified candidate for consideration.”
And the board members themselves? It’s quite an impressive list. It includes a vast international melting pot of highly credentialed people, from a UNESCO official to a Nobel laureate. Some names include Afia Asantewaa Asare-Kyei, a human rights lawyer who is program manager, Open Society Initiative for West Africa; and John Samples, free speech expert and vice president of the establishment-heavy, libertarian-leaning Cato Institute in Washington, D.C., as well as Jamal Green, Constitutional law professor at Columbia Law School.
And, notably, Stanford’s Pamela Karlan, who made a joke about Barron Trump at the impeachment hearings (Ukraine version), was a board member, but she quit on Feb. 8, 2021. But it wasn’t due to a conflict of interest. You might say it was simply interest: She joined the Biden administration. The article I found doesn’t specify her role, though it’s back at the DOJ like when she worked there for Obama. Previously she had been part of the Obama DOJ. I counted up the board members, not finding her there, and concluded that she has been replaced by a colleague at Stanford, Michael McConnell, professor and director of the Constitutional Law Center there.
Pamela Karlan.
As for the IRS tax case? It must be in Facebook jail because no one has seen it. There was an article in Pro Publica from this January which blamed Republicans in Congress for gutting the IRS budget so much that the agency couldn’t afford to pay experts to fight Facebook’s lawyers, essentially.. I have no way of evaluating how much the delay was due to Republican budget cuts, since I know from experience that Democrats are simply not curious about where their money is actually going. Of course there are always exceptions.
The article, titled “Who’s Afraid of the IRS? Not Facebook,” is a pretty enlightening account detailing the amount of money and manpower Facebook has mounted to resist this case. They stonewalled on documents and tried to do get an IRS pledge that they wouldn’t use the extremely powerful weapon of a designated summons (the IRS commendably said “no.” And then they got the documents they needed and they raised the claim amount from $9 billion to $20 billion (take a look at Facebook’s annual ad revenue growth, all based in Ireland). The most recent year is bigger than the first huge cache of $85 billion to “kill terrorists over there so they don’t come… over here.” And ads make up almost all of Facebook’s total revenue. Now think of the corporate tax rate in Ireland as 12.5 percent of that revenue. Then compare it to the 35 percent corporate tax rate in the United States at that time (before Trump’s tax reform act in 2017 which lowered it to 21 percent). That’s a formidable amount of taxes owed. That’s almost worth a U.S. war.
And the lack of movement or media reporting since February 2021 could point to some major stalling. Which brings me to the question: Does Facebook have the ear of President Joe Biden and the IRS? This battle has been going since Barack Obama’s presidency. Only time will tell. Stay tuned for a pittance of a settlement. Though I really hope not.
