We all love Google don’t we? But on top of the enormous power it has over our daily lives, it now seems to have acquired the power to dodge tax.
Perfectly legally, no doubt.
According to Bloomberg, Google is now being audited or investigated by tax authorities in the USA and France, who want to know whether the company is shifting its profits into tax havens.
Google currently pays a tax rate of only 2.4% on its corporate income outside the USA, according to Bloomberg. When you include its American income, that rate rises to 18.8%, but that is still less than half the statutory rate of 39.2% for combined US federal and state taxes.
The super-hip internet company — which grows rocket and tomatoes at its head office in California — has slashed its tax bill by $3 billion in the last three years, says Bloomberg, by moving profits through Ireland and Netherlands to Bermuda, using techniques known as the “Double Irish” and the “Dutch Sandwich”.
It’s not alone in this, of course: “Google, Cisco, Facebook, Microsoft and Forest Laboratories, maker of the blockbuster antidepressant Lexapro, have used tax-cutting strategies that move profits into units — often with no employees or offices — in havens such as Bermuda, the Cayman Islands and Switzerland,” Bloomberg reports. And plenty of Australian businesses or entrepreneurs, including the Packers, Alan Bond and Rupert Murdoch have done the same.
So how does it work? Well, in Google’s case, it goes like this:
Google bases its European operations in Ireland. European Commission rules allow the group to collect profits there and pay tax at only 12.5% on the money it makes in 27 European countries. Nice work, eh.
Google extends this technique to Australian operations. Last year Google sold $740 million worth of online advertising in Australia but booked revenues of only $150 million, making a $3 million loss and paying just 1% tax. How did it do that? By billing all the revenue to Google Ireland and getting its costs back in return. Even nicer.