Italian Tax Police Looking Into Facebook for Possible Underpayment of Taxes

ROME – Italy’s tax police said Friday they had opened an investigation into the Italian operations of social media giant Facebook on speculation that the company may have underpaid its taxes.

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It’s the second such investigation into a major Internet company in Italy in 10 days: last week, officials said that U.S. Internet giant Google under-reported its income by at least €240 million over the 2002-2006 period, resulting in an improperly avoided tax bill of at least €96 million ($123 million).

In that case, tax officials said Google used a complex system of dividing revenues between its operations in Italy, its European base in Ireland, its home base in California, with some royalties even reported in The Netherlands and Bermuda. Google has denied any wrongdoing and has vowed to work with tax officials.

Less is known about the new Facebook case, except to say that tax police had requisitioned documents needed to audit the company from its Milan offices. Facebook’s Italian operations issued a short statement saying the company “respects very seriously [its] obligations under the Italian tax laws,” and, like Google, Facebook promised to cooperate with investigators.

There was no indication how much tax police think Facebook might owe.

The probes into Google and Facebook are part of a wider effort from the Italian government to dramatically reduce tax evasion as it seeks to pay down the government deficit and assuage investor fears that it might be forced to default on debt payments.