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Meta Urges California Attorney General to Block OpenAI’s For-Profit Conversion

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Meta Platforms has called on California’s Attorney General Rob Bonta to intervene and prevent OpenAI from transitioning to a for-profit business model, according to a report by the Wall Street Journal on Friday. In a letter sent to the attorney general on Thursday, Meta expressed concerns that permitting OpenAI to become a for-profit company would create a troubling precedent.

Meta argued that such a move would allow startups to benefit from nonprofit status until they are ready to become profitable, thereby unfairly giving investors the advantages of both nonprofit tax benefits and for-profit gains. The letter cautioned that if OpenAI’s shift to a for-profit model were allowed, it could have “seismic implications” for Silicon Valley.

The company’s concerns center around the potential for nonprofit investors to receive the same financial benefits as traditional for-profit investors, while still enjoying the tax write-offs associated with nonprofit status. Meta has not yet responded to a request for comment, and the California Attorney General’s office was also silent on the issue.

This latest development comes after OpenAI, in its own legal battle, urged a federal judge in California to dismiss Elon Musk’s request to halt the conversion of the company to a for-profit entity. Musk, a former co-founder of OpenAI, filed a lawsuit in August, accusing the organization of prioritizing profit over public good in its AI development.

Musk, who launched his own AI company, xAI, has argued that OpenAI’s shift undermines its mission and represents a violation of contract agreements. In November, Musk sought a preliminary injunction in federal court to stop the transition.

OpenAI has responded by asserting that any restructuring would preserve the nonprofit’s continued existence and ensure it receives full value for its stake in the new for-profit entity, with a mission-driven focus. OpenAI’s chairman, Bret Taylor, emphasized that the nonprofit would continue to thrive and be able to pursue its goals.

In their letter, Meta also expressed support for Musk’s efforts to ensure public interests are considered in the decision to allow OpenAI to convert to a for-profit structure.

 

Italy Concludes Probe into Meta Executives for Alleged €887.6 Million VAT Evasion

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Italian prosecutors have concluded their investigation into alleged tax evasion by Meta (META.O), the parent company of Facebook, involving two executives from its Irish subsidiary, Meta Platforms Ireland Ltd. The probe centers on a claimed €887.6 million ($937.93 million) in VAT evasion. This marks a significant step in the process, although no trial requests have been made yet, as the suspects are still allowed to prove their innocence.

Implications for the Industry

The case could have broader consequences for the tech industry, as it involves how Meta provides access to its platforms like Facebook and Instagram. While the €887.6 million might seem modest compared to Meta’s $32 billion in annual revenue, the issue revolves around the way user data is exchanged for free access to these services, which could set a precedent for how other tech companies are taxed.

Tax Dispute with Italy’s Revenue Agency

The core of the investigation is tied to ongoing negotiations between Meta and Italy’s Revenue Agency. Last year, Italian tax authorities argued that Meta’s user registrations should be considered taxable transactions, as they involve the non-monetary exchange of personal data for access to social media services. The authorities claim that between 2015 and 2021, Meta failed to declare nearly €4 billion in taxable income, leading to VAT evasion of more than €887 million.

Next Steps and Meta’s Response

Meta has 60 days to respond to the Revenue Agency’s observations, after which the company can either settle by paying the proposed amount or initiate a legal challenge. Meta disagrees with the tax authority’s stance, arguing that providing users with access to its platforms should not be subject to VAT. In response to the dispute’s complexity, Italy’s Ministry of Finance has sought a technical opinion from the European Commission’s VAT Committee, though no response has been received yet.

EU Probes Secret Google-Meta Ad Deal Targeting Teens

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European regulators have intensified scrutiny of a secret advertising partnership between Google and Meta Platforms, which reportedly bypassed Google’s policies on protecting minors online. According to a Financial Times report, the now-canceled agreement targeted 13- to 17-year-old YouTube users to promote Meta’s Instagram platform.

The collaboration, revealed in August, initially operated within the United States but was poised for global expansion before being scrapped. Despite its termination, the European Commission continues to investigate the deal. Regulators are reviewing gathered evidence to determine whether further action is warranted, the report noted.

In October, the Commission directed Alphabet, Google’s parent company, to compile and analyze data, internal chats, emails, and presentations related to the campaign.

Industry Safeguards and Policy Updates

Google, which prohibits ad personalization for users under 18, defended its policies in response to the allegations. “The safeguards we have to protect teens, like prohibiting ad personalization, are industry-leading and continue to work,” a Google spokesperson stated via email. The company also emphasized its efforts to strengthen internal training for its sales teams to ensure compliance with these safeguards.

Meta, the parent company of Instagram and Facebook, had earlier enhanced privacy settings and introduced parental controls for Instagram accounts of users under 18. This move was part of a broader initiative to address mounting concerns about the mental health impact of social media on young people.

Potential Regulatory Actions

The European Commission has shared its findings with relevant authorities, who are evaluating whether to initiate formal actions against the companies involved. While Google and Meta have yet to comment directly on the partnership’s implications, this development underscores ongoing efforts to ensure compliance with privacy and advertising regulations for minors in the digital space.

Google’s restrictions prohibit ad targeting for minors based on age, gender, or interests, while Meta’s recent privacy upgrades highlight its intent to address criticisms of how its platforms affect teen well-being. However, this controversy has cast a spotlight on corporate practices regarding minors’ online safety and data privacy.