| Hi everyone, it's Sarah Frier. Facebook Inc. employees regularly tell me they're frustrated at being singled out and publicly critiqued for doing the same things other major tech companies do. Facebook, they remind me, was the underdog a decade ago—a mere startup in comparison to Google and Amazon.com Inc. If they were buying up competitive threats and avoiding taxes, it's because they were following industry best practices. But some of these strategies may become industry worst practices as regulators, politicians and the public step back and take a new look at what's happened over the past 10 years. This week, the Federal Trade Commission announced a probe into hundreds of small startup acquisitions from the previous decade by Google, Apple Inc., Amazon.com Inc., Microsoft Corp. and Facebook, as we noted in this space on Wednesday. The social-media company's largest deals are already under antitrust investigation. Now it will be scrutinized for the industry "best" practice of snapping up small startups to add talent, gain users, gather more data or eliminate potential future rivals.
And Facebook will soon get the same kind of legal scrutiny Apple and Google have faced in the past over aggressive maneuvers to lower their tax bills. Facebook will be in court starting next week to defend its strategy of shifting profit to Ireland, a lower-tax country. If the company loses, it may have to pay $9 billion more in tax to the U.S. Internal Revenue Service, according to a regulatory filing.
There's a fascinating back story here, chronicled last month by ProPublica, which found internal documents revealing how Facebook structured its operations to limit tax. Chief Operating Officer Sheryl Sandberg said the company needed to follow Google's footsteps and find "a low taxed jurisdiction to park profits," according to a note she sent other executives in 2008. ProPublica recently reported on a similar approach by Microsoft that helped the software giant shift at least $39 billion in profit to Puerto Rico. Arguments in the Facebook case start Tuesday in San Francisco, and the trial could last weeks. The company plans to call up to 63 witnesses. Facebook has said its tax strategy is legal. In a statement, the company refers back to a time when it was young and eagerly seeking ways to catch up with larger rivals. "This trial is about transactions that took place in 2010, when Facebook had no mobile advertising revenue, its international business was nascent, and its digital advertising products were unproven," a spokesman wrote. "Our business has had hits and misses but we stand behind the actions taken over a decade ago during a time of great risk and uncertainty for the company." Facebook may have been an underdog then, but the strategies worked. Now the company is just as vulnerable to the consequences as every other tech giant. —Sarah Frier | 
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