Forums - General Discussion - Google. Stealing a living.

If they pay less tax... you pay more.  I'm all for efficient tax planning and, but some large corporations, specifically Google, Starbucks and Amazon are frankly taking the piss now.    I get the EU has some idiotic rules allowing this to take place and I am no socialist (very far from it), but I think there is a degree of social repsonsibility and morality here.  Remember, you have a right to buy coffee, shop and search elsewhere.  The recent backlash against Starbucks in the UK certainly worked, costa coffee increased market share massively over a short period and Starbucks "volunteered" to pay some more tax.

 

Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion

 

By Jesse Drucker - Dec 10, 2012 5:01 AM GMT

Michael Turek
Front Street in Hamilton, Bermuda. The increase in Google’s revenues routed to Bermuda, disclosed in a Nov. 21 filing by a subsidiary, could fuel the outrage over corporate tax dodging.

Google Inc. (GOOG) avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show.

By legally funneling profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google cut its overall tax rate almost in half. The amount moved to Bermuda is equivalent to about 80 percent of Google’s total pretax profit in 2011.

The increase in Google’s revenues routed to Bermuda, disclosed in a Nov. 21 filing by a subsidiary in the Netherlands, could fuel the outrage spreading across Europe and in the U.S. over corporate tax dodging. Governments in France, the U.K., Italy and Australia are probing Google’s tax avoidance as they seek to boost revenue during economic doldrums.

Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a press conference in Brussels.

‘Deep Embarrassment’

“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe,” said Richard Murphy, an accountant and director of Tax Research LLP in Norfolk, England. “The political awareness now being created in the U.K., and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut.”

Google said it complies with all tax rules, and its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement.

The Internet search giant has avoided billions of dollars in income taxes around the world using a pair of tax shelter strategies known as the Double Irish and Dutch Sandwich, Bloomberg News reported in 2010. The tactics, permitted under tax law in the U.S. and elsewhere, move royalty payments from subsidiaries in Ireland and the Netherlands to a Bermuda unit headquartered in a local law firm.

Last year, Google reported a tax rate of just 3.2 percent on the profit it said was earned overseas, even as most of its foreign sales were in European countries with corporate income tax rates ranging from 26 percent to 34 percent.

Foreign Taxes

At a hearing last month in the U.K., members of Parliament pressed executives from Google, Seattle-based Amazon.com Inc. (AMZN) and Starbucks Corp. (SBUX) to explain why they don’t pay more taxes there.

The U.K., Google’s second-biggest market, was responsible for about 11 percent of its sales, or almost $4.1 billion last year, according to company filings. Google paid 6 million pounds ($9.6 million) in U.K. income taxes.

Matt Brittin, Google’s vice president for Northern and Central Europe, testified that the company pays taxes where it creates “economic value,” primarily the U.S.

Still, Google attributes some profit based on technology created in the U.S. to offshore subsidiaries, lowering its U.S. taxes, according to company filings and people familiar with its tax planning. Google paid $1.5 billion in income taxes worldwide in 2011.

‘Fair Share’

In the wake of the parliamentary hearing, the House of Commons issued a report last week declaring that multinationals “do not pay their fair share” of tax. The committee also criticized the U.K.’s tax collection agency, Her Majesty’s Revenue & Customs, for “not taking sufficiently aggressive action” and called on the agency to “get a grip” on corporate tax avoidance.

A spokesman for HMRC said the agency “ensures that multinationals pay the tax due in accordance with U.K. tax law.”

The French tax authority this year proposed increasing Google’s income taxes by about $1.3 billion. The agency searched Google’s Paris offices in June 2011 and removed computer files as part of an examination first reported by Bloomberg last year. Google is cooperating with French authorities and works with them “to answer all their questions on Google France and our service,” the company said.

Italian Audit

In Italy, the Tax Police began an audit of Google last month and recently searched the company’s Milan offices, as well as the offices of Facebook Inc. (FB), according to a person familiar with the matter. “It’s very common for companies to be audited, and we have been working closely with the Italian authorities for some time,” Google said. “So far we have not had any demands for additional tax in Italy.”

Facebook, based in Menlo Park, California, is cooperating with the Italian tax authority and “we take our obligations under the Italian tax code very seriously,” a company spokeswoman said.

In Australia, the country’s assistant treasurer gave a speech last month outlining Google’s tax avoidance strategies.

The use of offshore shelters to avoid corporate taxes has prompted calls for reform in the U.S. as well. The Treasury Department has repeatedly proposed since 2009, with little success, to make it harder for multinationals to bypass taxes by shifting profit into tax havens.

Transfer Pricing

Multinational companies cut their tax bills using “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens and expenses to higher-tax countries.

In Google’s case, an Irish subsidiary collects revenues from ads sold in countries like the U.K. and France. That Irish unit in turn pays royalties to another Irish subsidiary, whose legal residence for tax purposes is in Bermuda.

The pair of Irish units gives rise to the nickname “Double Irish.” To avoid an Irish withholding tax, Google channeled the payments to Bermuda through a subsidiary in the Netherlands -- thus the “Dutch Sandwich” label. The Netherlands subsidiary has no employees.

The Dutch unit’s payments to the Bermuda entity last year were up 81 percent to $9.8 billion from $5.4 billion in 2008. Google’s overseas sales have increased at about the same rate.

Google’s overall effective tax rate dropped to 21 percent last year from about 28 percent in 2008. That compares with the average combined U.S. and state statutory rate of about 39 percent.

To contact the reporter on this story: Jesse Drucker in Rome at jdrucker4@bloomberg.net

To contact the editor responsible for this story: Daniel Golden in Boston at dlgolden@bloomberg.net



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Different with Starbucks, i suppose, but its harder to do with a company like Google or other internet companies where the source of revenue (as far as a taxable location) goes is a pretty sticky issue.

My catchall solution for non-internet companies would be complete abolition of corporate income tax in lieu of a VAT (or if VAT already exists along with corporate income, killing the latter and hiking the former to compensate), essentially moving everyone to a "pay to play" model; you want to play in a certain market, you have to give over the tax revenue. So no more subsidiary shell games or outsourcing of corporate headquarters, and the loss of the corporate income tax means that the cost doesn't get passed onto consumers as such (the burden on the company remaining roughly the same)

Makes sense to me, anyway. Why should the companies that follow the rules be "punished" by having to pay their fair share while the ones playing funny little games get off with less?

Present life in a nutshell

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Playing devils advocate here but surely there is nothing wrong with only paying the tax you are legally required to pay. People use ISAs, non taxable job perks, charitable donations etc to avoid paying tax without negative stigma. How would shareholders react to management not minimising its tax burden
The fault lies with governments for allowing these loopholes to exist in the first place and last as long as they have.

Personally I've been avoiding Starbucks since all this came to light. Google is too integrated into my life to avoid :'(

Tallgeese101 said:
Playing devils advocate here but surely there is nothing wrong with only paying the tax you are legally required to pay. People use ISAs, non taxable job perks, charitable donations etc to avoid paying tax without negative stigma. How would shareholders react to management not minimising its tax burden
The fault lies with governments for allowing these loopholes to exist in the first place and last as long as they have.

Personally I've been avoiding Starbucks since all this came to light. Google is too integrated into my life to avoid :'(

I agree.  Its another consequence of Euro rules.  It should be tightened up.



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Mr Khan said:
Different with Starbucks, i suppose, but its harder to do with a company like Google or other internet companies where the source of revenue (as far as a taxable location) goes is a pretty sticky issue.

My catchall solution for non-internet companies would be complete abolition of corporate income tax in lieu of a VAT (or if VAT already exists along with corporate income, killing the latter and hiking the former to compensate), essentially moving everyone to a "pay to play" model; you want to play in a certain market, you have to give over the tax revenue. So no more subsidiary shell games or outsourcing of corporate headquarters, and the loss of the corporate income tax means that the cost doesn't get passed onto consumers as such (the burden on the company remaining roughly the same)

Makes sense to me, anyway. Why should the companies that follow the rules be "punished" by having to pay their fair share while the ones playing funny little games get off with less?

seems fair



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"its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement."

"and in the same time we killed thousands of companies in that country because they can't compete against us with them paying 10x as much tax as we do and the hundred of millions we would normally pay tax in this country are not in this country anymore which surley helps this country so much."

and i don't even want to know how many online stores or retailer went broke in germany because of amazon and amazon's advantage. "oh look it's 5% cheaper on amazon i will buy it there, every other retailer won't sell anything anymore"

but yeah, laws have to get changed or whatever is possible.



This is the natural result of progressive taxation with deductions. It allows organizations and individuals huge leverage in gaming the system.

This is why I favor the FairTax and flat tax systems with no corporate taxes. Shift the burden onto people, not businesses. The reason, then, is that they'd have no need for tax havens, as there'd be no way to secretly reduce your tax rate.

I have a digital sales data blog for those interested: Digital Game Insights

Some msft fan is butthurt over google...

Moderated,

-Mr Khan



i completely agree with you kowenicki. while my company isn't listed above i'm ashamed to say we do the same practices.

i'm not sure a "global government" is exactly needed there certainly needs to be more cross-country collaboration to eliminate these loopholes larger corporations are able to exploit.

        

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ahh dallas you are late