Paul L. Caron

Thursday, October 21, 2010

Google Reduced its Tax Rate to 2.4% With Aggressive Tax Strategies

Google Bloomberg, Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes, by Jesse Drucker:

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4%, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20%.” The U.S. corporate income-tax rate is 35%. In the U.K., Google’s second-biggest market by revenue, it’s 28%.

Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5% income tax.

The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad.

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That's pretty sketchy. Does every company do that?

Posted by: John | Oct 21, 2010 8:04:47 AM

I'd do it if I knew how to. But, then again, some people compare saving taxes to apartheid and slavery and Google is like Hitler.

Posted by: Woody | Oct 21, 2010 9:50:56 AM

Their tax rate is 22-27% per their financials. The 2.4% is hallucinated (or, rather, is the tax on the income that's successfully shifted to Bermuda)

Posted by: jpe | Oct 21, 2010 10:39:43 AM

You should change the headline to "Google Reduced its Overseas Tax Rate to 2.4% with Aggressive Tax Strategies."

Posted by: TK | Oct 21, 2010 12:19:14 PM

PLEASE PLEASE NOTE: John Doerr, who is on the President's Economic Recovery and Advisory Board.....currently serves on the boards of Google and

Posted by: DW | Oct 21, 2010 11:41:58 PM

With so much cash Google can afford to help the country and not just get out off paying it's share off taxes.

Posted by: Mario | Oct 22, 2010 5:43:17 AM

Headline should read: "Wisconsin Farmer Subsidizes Google"

This all may be legal. But it isn't moral.

The farmer, the miner who breaks his back digging coal, the corner store owner, the older worker forced to ask "Would you like fries with that?" all pay their fair share.

So should Google.

Americans are really pissed at corporations right now. This does nothing to improve the image of companies involved in wealth-rape.

Posted by: Rich Fallis | Oct 22, 2010 6:00:52 AM

The American farmer, miner, whatever could reduce his or her effective tax rate if he or she had operations or income producing property in low tax jurisdictions. If one compared the so-called "loopholes" for individuals, starting with the deduction for mortgage interest, you would find a similarly low effective tax rate. I thought readers of this blog had some basic knowledge of taxation.

Posted by: TexEcon | Oct 22, 2010 8:36:58 AM

After news of Google tax dodges, Obama raises money with Google execs

On the day it was reported that Google uses income shifting techniques known by such arcane names as the "Double Irish" and the "Dutch Sandwich" to avoid paying taxes on its foreign profits, President Obama attended an intimate, high-dollar fundraiser at the Palo Alto, California home of a top Google executive. He didn't mention Google's tax tricks, according to a White House transcript of his remarks.

The Democratic fundraiser, which guests each paid $30,400 to attend, was at the home of Marissa Mayer, one of Google's best-known executives. At the lavish home, which was "decked out in Halloween decorations on steroids," according to a White House pool report, Obama spoke briefly and had nothing but praise for Google. He spoke fondly of his first visit to the company when he was an Illinois state senator. ....

Posted by: Woody | Oct 23, 2010 8:38:06 AM

A few years ago, the US based pharmaceutical giants were "exposed" in a similar manner for being very effective at placing "value" outside the US in low or no tax countries (often using local tax incentives to achieve low local rates) and then of course recognizing significant levels of profits in those countries. From Google's tax footnote in its 2009 financial statements, it appears that Google is paying full tax on its earnings in the US. In the case of the pharmaceutical companies, they went further and were able to recognize perhaps a majority of their profits overseas despite R&D activities and significant sales taking place in the US.

The US system allows this. While it may seem like stealing or feel like it should be unethical, the fact is that the professionals within these companies and their advisors would be remiss if they didn't look for legal approaches to saving or deferring tax dollars. And the accounting rules allow such "deferred taxes" to be excluded from a company's tax expense if they intend to permanently reinvest the earnings outside the US.

Maybe I'm cynical in my old age, but I don't see our Congress with the many special interest groups ever changing this. As such, this will be a part of the "game" for a long time to come. Actually, our Congress even encouraged it with the allowance of a special low tax rate during a short window period on repatriated low taxed foreign earnings a few years ago.


Posted by: Jeff Kadet | Oct 26, 2010 11:32:13 PM