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Google says it paid TOO MUCH tax, wants $83.5m refund

Claims it was wrongly denied deduction in AOL stock sale

Internet Security Threat Report 2014

Not content with slashing its tax burden by channeling profits through overseas subsidiaries, Google now says it has actually overpaid $83.5m in tax – and it's suing the US Internal Revenue Service to get it back.

The dispute dates back to 2004, when America Online exercised a warrant to buy approximately 7.4 million shares of Google's preferred "series D" stock for around $22m, Bloomberg reports.

This was shortly after Google went public, so the actual value of the shares at the time was more like $260m. Yet Google claims the IRS improperly denied it a deduction for the difference between that amount and the stock's sale price.

Had the IRS allowed the deduction, the Chocolate Factory would have paid tens of millions less tax that year, the company says, and now it wants the government to refund the overpayment.

According to its annual report filed with the Securities and Exchange Commission in January, Google has spent several years wrangling with IRS officials to resolve several issues related to its 2003 and 2004 tax years. But although it has managed to settle most of those disputes, the IRS has remained intractable in the matter of the stock sale to AOL.

Its other options exhausted, Google is now taking its case to the US Tax Court, where it has requested a trial to take place in San Francisco.

This is certainly not the first time Google has butted heads with the US government over matters of taxation. The online giant periodically comes under scrutiny from the IRS over its elaborate profit-shifting techniques, which are believed to help it avoid paying some $1bn in federal taxes each year.

The UK government, too, has criticized Google's tax arrangements, with the Public Accounts Committee describing the company's corporate payments structure as "highly contrived" and demonstrative of "aggressive tax avoidance."

For its part, Google denies such characterizations. In December 2012, Eric Schmidt, the company's executive chairman, told Bloomberg, "I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate. It's called capitalism."

As for the lawsuit Google filed against the IRS this week, a Chocolate Factory spokeswoman said only, "We hope to have it resolved soon." ®

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