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Analysis I think we all know that Google's pretty good at, um, obeying tax laws to the letter. For example, they've paid an entire £8m in UK corporation tax on revenues of some £6bn from 2004 to 2010.

Here the game is wrapped up in things like the "Double Irish" and the "Dutch Sandwich", entirely legal moves which put the revenues actually into Irish or other companies which happen to be in countries with low tax rates, even as those revenues and or the people who work to collect them are in higher tax countries. The next stage is that US corporation (or as they call it, the corporate income tax) is only payable on profits that are actually taken into that country. So if the profits made are sitting in Ireland or Bermuda or wherever, as long as they sit there they are not taxed again.

However, this deal to purchase Motorola Mobility might be a coup to beat that hands down. The headline price to purchase the handset-maker and their bundle of patents is $12.5bn but that's not what the net cost to Google might turn out to be. How about $3.8bn for that? For, along with the company and the patents, Google has also bought a series of tax losses.

The estimate of the net cost does depend upon this US accountant having got his sums right, this is true:

"The tax benefits of the deal make what was a good deal into a great deal," said Robert Willens, a New York accounting and tax expert. He estimated that through the acquisition, Google can expect to reap $700m a year in tax deductions from future profits each year through 2019. Google also will be able to immediately reduce its taxes by $1bn due to Motorola Mobility's US net operating loss, and by a further $700m due to its foreign operating loss, he said.

The way this works might be a bit of a mystery to some, but there's good and honest logic at the root of it. We don't actually want to tax a company on the profits it makes in any one year: we want to tax (assuming we want any profits taxes at all) the cumulative profit that a company makes. It might take you a few years to start making profits: so we say that those losses you made during start-up can be offset against the profits you make in the future.

In fact, any new line of business is going to be like that and we certainly want the losses on building a new factory, new product, to be offset against the profits from old ones. There are also companies that have wild swings in profits. (Oil companies are notorious for this, for as oil prices fall the value of the stuff that's in the system – from wellhead to pump – falls, creating shocking losses. The reverse occurs when prices are rising.) There are others that have nice predictable levels. If we don't allow loss offsets against profits in other years then the more variable the profit/loss, the more the company will be paying in tax – against one with regular profits for the same level of cumulative profits.

So, past losses being offset against future profits before we calculate tax bills is just fine.

But, and here's the fun part, Motorola Mobility has been losing a shed-load of cash in recent years. It has lots of those lovely tax losses: which can now be offset against Google's future profits. You're not allowed to buy a company (at least, under US rules you're not) solely to get your hands on their tax losses. But Google is buying the pile of patents, isn't it? I mean, look, they took part in the Nortel patent auction, everyone knows they're trying to buy patents.

You would really have to be very cynical indeed to think that Google didn't take the Nortel auction seriously. Did I mention that because Nortel was in Chapter 7 liquidation (or the Canadian equivalent) there were no tax losses that could be transferred? I didn't? ®

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