IRS audits Google for funneling profits to Ireland
Savings of $1bn per year from 'Double Irish' loophole
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The US Internal Revenue Service is auditing strategies that Google uses to cut its tax bill by about $1 billion a year by funneling profit into subsidiaries located in territories with low or non-existent rates, according to a published report citing unnamed officials.
The agency is “bringing more than typical scrutiny” to techniques known as the “Double Irish” and “Dutch Sandwich,” which move profits through units in Ireland, the Netherlands, and Bermuda, Bloomberg News reported on Thursday. Last year, Bloomberg reported that the practice had saved Google $3.1 billion in just three years.
In 2009 alone, a Google subsidiary located in Bermuda, where there's no corporate income tax, collected about $6.1 billion in royalties from a separate Google unit located in the Netherlands, Bloomberg reported. By transferring profits out of the US and other territories where rates are high, Google is able to drastically lower its costs. On Thursday, Google reported an effective tax rate of about 19 percent for third quarter, less than half the average combined US and state statutory rate of 39.2.
Google is by no means alone in pursuing the strategy. US companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries that aren't subject to income taxes. If the earnings were transferred to the US, they would face a 35-percent corporate rate. Microsoft, Apple, and Cisco Systems use similar vehicles to avoid federal income taxes, but it's not clear they do so with the same spectacular success.
In 2006, the IRS approved much of Google's tax arrangement when it signed off on a 2003 intracompany transaction that moved foreign rights to its search technology to Google Ireland Holdings, an Irish subsidiary managed in Bermuda. The deal allowed future profit derived from those copyrights to be recognized in foreign subsidiaries rather than in the US, where the underlying technology was developed, Bloomberg said.
But the IRS assent covered rights Google held as of 2003 and doesn't cover technology the company acquired since then. Since that time, Google has made at least three major acquisitions that the IRS is now examining, Bloomberg said. They include the $1.65 billion purchase of YouTube in 2006, $3.2 billion for email security service Postini in 2007, and $3.2 billion for DoubleClick in 2008.
A Google spokesman told Bloomberg: “This is a routine inquiry.” He didn't answer a Bloomberg reporter's question about whether the company intended to assign patents acquired in its $12.5 billion purchase of Motorola Mobility to foreign subsidiaries. ®
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COMMENTS
So... drop the tax rate below what they're currently collecting?
And how is that supposed to help anyone?
"Double Irish" and "Dutch Sandwich"
I'm sure I saw definitions of those in the Viz Profanisaurus app that I downloaded yesterday ...
I wish I were a corporation.
The real issue here is that governments in the US , here in the UK and elsewhere have tax codes that are so complex and full of loopholes that corporations can play pass the parcel with their profits. And with lots of money spent on lobbyists you aren't going to see any change any time soon.
Whilst legally ok, it doesn't bode well for the future. In the past large companies had large workforces who paid taxes. We are now in the situation where companies are outsourcing much of the work overseas and those staff left are experiencing the biggest pay freeze in decades. The cost of running our countries hasn't changed much. The NHS and social security (the biggest items in the budget) aren't shrinking. This means that the tax burden on us Jo Schmoes is just going to get worse, and unless something radical happens , it is going to be a long time before you get growth in the economy. Keep it up all you tax "planners", but you are storing up trouble.
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