Google, which encourages employees to ”œDo No Evil”, managed this past quarter to reduce its international tax rate to 2.4% of net income, despite earning most of its revenue in countries like the US, the UK, Germany, and Japan that have corporate tax rates of at least 25%. In comparison, the average recent effective US tax rate for 2,000 companies was 28.3%.
In a report published today in Bloomberg, Google was described as using tax techniques known as the ”œDouble Irish” and the ”œDutch Sandwich” to avoid paying taxes in the countries in which it earns most of its revenue. Google uses a Dublin subsidiary and declares that 88% of its overseas sales are generated by this office which employs 2,000 people. Ireland maintains a very low tax rate to encourage foreign investment, but it then adds an important benefit: it allows companies to shift revenues to low-tax countries using transfer pricing. Google shifts its Ireland revenues to The Netherlands (Irish law requires using an EU country for the first leg of this shift). The revenue is then transferred to Bermuda, which has a minimal tax rate. In the meantime, Google uses transfer pricing to shift its expenses to high-tax countries in order to declare tax write-offs.
Google is estimated to have cut its taxes in the past three years by $3.1 billion. Studies done on this tax evasion technique, which is not illegal, estimate it costs the US Treasury $60 billion a year in lost tax revenue. Google’s stock closed yesterday at $608/share, and according to some analysts the tax scheme contributes at least $100/share to this price.
Microsoft uses a similar tax technique, and Facebook has announced it is setting up an Irish subsidiary for this purpose. Google owes its existence to support from the US Government. The research used to power Google’s search engine was developed and funded by a grant from the National Science Foundation. Sergei Brin, co-founder of Google, was provided a tax-payer funded scholarship while working on this research.
The taxes are not eliminated under this scheme; they are deferred. If a corporation repatriates its overseas earnings back to the US, the earnings are taxed at the US rate. However, corporations never do this. Microsoft, for example, recently went to the US bond market to borrow money for cash purposes, rather than repatriate its substantial cash pool sitting overseas.
See this article in Bloomberg by reporter Jesse Drucker:
http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html
By putting ‘Do No Evil’ in quotes, you imply some evilness to Google’s practices, and the ‘which is not illegal’ is merely your disclaimer.
I’m sure all taxpayers try to minimize their taxes. Some have more ‘tools’ available to do so: corporations versus farmers versus self-employed versus John Doe, etc. The fact that government money funded the research that led to Google is meaningless. There’s a lot of NASA research that led to commercial products, but we don’t demand the corporations using the results of the research pay more than they are required to pay.
The various governments – including ours – established the rules in the first place. It would actually be fiscally irresponsible if Google did not seek to minimize taxes. In an ideal world we might have one set of rules for everyone, everywhere, but that’s not the case and probably shouldn’t be. In NYC, for example, tax breaks are used to promote redevelopment of depressed areas. Governments need the flexibility to tailor tax law to their specific needs and such laws would be useless unless corporations took advantage of them.
Then explain, if you can, how exactly the specific tax breaks reported above benefit the country as a whole. I see how they benefit Google and other multinationals but I can’t see how they benefit the country in the same way as the NYC tax breaks you mention promote redevelopment within the taxing entity.
Of course Google has a duty to its shareholders blah, blah, blah but what of the duties to the polity that sustains it ultimately and what of the polity’s duties to its citizens. Oh, on the latter I get it – the polity’s duty is to its shareholders (not its citizens) you know, the ones who pay the politicians.
The taxes are not eliminated under this scheme; they are deferred. If a corporation repatriates its overseas earnings back to the US, the earnings are taxed at the US rate. However, corporations never do this. Microsoft, for example, recently went to the US bond market to borrow money for cash purposes, rather than repatriate its substantial cash pool sitting overseas.
Microsoft will repatriate it after it goes bankrupt.
The other thing is that many banks are ponzi schemes. There are inaccessible bank accounts in books.
– “Socialism is a bridge to nowhere!”, Sarah Palin
And all of this is made possible by a quiescent Congress and Executive Branch that fiddle as Rome burns. At least Google’s service works, or seems to. But how would we know?