Facebook transferred around $700 million to their office in Ireland and then to a Grand Caymans subsidiary to limit how much they would have to pay in taxes. Google did something very similar in 2011 by moving $9.8 billion to a shell company in Bermuda. Even Apple paid only 1.9% in income taxes on $36.8 billion in 2012 earnings outside the U.S. The strategy that Facebook conducted is known as the “Double Irish arrangement.”
According to Raw Story, Facebook set up 2 Irish subsidiaries. One of them owns the non-U.S. rights to their intellectual property and is a tax resident of the Cayman Islands — which does not have any taxes charged. The Cayman Islands-based Irish company licenses its intellectual property to the second Irish company.
The Guardian reported that Facebook paid nearly $1.2 billion to itself in licensing and royalties. Even though Facebook Ireland had gross profits of $1.35 billion for the year, they actually recorded a $24 million loss. Facebook defended their accounting and said that they complied with all relevant regulations.