Subscribe
Interesting story on BusinessWeek on how Google has been using a complicated tax structure to pay little or no income tax since 2003 on its overseas operations. According to the story Google had an effective tax rate of 2.4% from 2007 to 2009.
How does it work you ask. When a company in Europe, the Middle East, or Africa purchases a search ad through Google, it sends the money to Google Ireland. The Irish government taxes corporate profits at 12.5 percent, but Google mostly escapes that tax because its earnings don’t stay in Ireland. (In Ireland Google reported pretax profit of less than 1 percent of revenues in 2008).
Google Ireland then sends the money to Netherlands, Ireland and the Netherlands have favorable tax treaties. To take advantage of Dutch tax regulations and treaties, Google has set set up a shell operations under the name of “GNH” in the Netherlands (there are no employees) . From the Netherlands it passes on about 99.8 percent of the money to Bermuda.
Then, Google uses a practice called “Transfer Pricing” to offset the cost of licensing its advertising technology from Google, Moutain View, California to Google Ireland. The licensing agreement allows Google to attribute its overseas profits to its Irish operations instead of the U.S. (where most of the technology was developed).
Google Ireland then pays an “arm’s length” price for the rights to use Google’s advertising technology. Because licensing fees from the Irish subsidiary generate income that is taxed at 35 percent, one of the highest corporate rates in the world, Google has an incentive to set the licensing price as low as possible. The effect is to shift some of its profits overseas using “Transfer Pricing.”
Abraham J. Briloff, a professor emeritus of accounting at Baruch College who has examined Google’s tax disclosures says, “Even if the tax avoidance structures are legal, not everyone considers them ethical. Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses. Who is it that paid for the underlying concept on which they built these billions of dollars of revenues? It was paid for by the United States citizenry.”
Briloff was referring to the fact that Google’s initial technology was based in part on research done at Stanford University and funded by the National Science Foundation. Profit-shifting arrangements such as Google’s cost the U.S. government as much as $60 billion in annual revenue.
Channels: evil, google, tax
Share company news, product news, sector news, industry news and more... 
[...] This post was mentioned on Twitter by Posts Google, Jon Tucker and JobShoots, JobShoots. JobShoots said: How Google Paid Only 2.4% In Taxes Since 2003 http://bit.ly/9zYXg3 #news #socialmedia [...]
Pingback by Tweets that mention How Google Paid Only 2.4% In Taxes Since 2003 -- Topsy.com — October 27, 2010 @ 4:48 PM
A bunch of unethical twerds.
Comment by Bonny — October 28, 2010 @ 10:25 AM
I know they were no good from day one. Scum bags.
Comment by Jeff F — October 28, 2010 @ 10:27 AM
These guys cannot be trusted. They are scum.
Comment by psd — October 28, 2010 @ 10:28 AM
Disgusting
Comment by A Tsalkos — October 28, 2010 @ 10:29 AM
What would you do on their place? Did they brake the law? Unethical? Ha-ha. Have you seen a lot of ethical people in government, on Wall Street or big corporations? Stop been a child, the world is not ethical at all.
Comment by Vit — October 28, 2010 @ 10:58 AM
While every small business in the US who pay them for ADS has to pay normal rates of taxes or be fined.
Comment by fionnd — October 28, 2010 @ 11:15 AM
Google isn't the only company that uses this kind of tax evasion. Don't find fault with Google without finding fault with Ireland. Corporate tax on Irish companies doing business inside Ireland is 25%, not 12.5%. Ireland sets up this favorable tax 12.5% structure specifically for exports. This is done specifically to attract Foreign Direct Investment into Ireland.
Starbucks is an example of another company that uses this type of structure. Their Irish subsidiary buy coffee on the international market for pennies and then sells it to their US operation for dollars, which in turn sells it to their customers at a small markup. Most of the profit is made in Ireland and so escapes higher taxes in the US, even though the real profit is made in the US.
Comment by A. Greenspan — October 28, 2010 @ 11:55 AM
Brilliant! Right now it's legal, so more power to them. Every person and company tries to pay the least amount of tax they can and rightly so.
Comment by Lee — October 28, 2010 @ 12:09 PM
@Lee, whoever told you that every person tries to pay the least amount of tax lied to you. Whoever told you that it is right to do something merely because it is legal had a poorly formed conscience. To put this in terms that show how lacking in moral character your statement is… In Nigeria, the age of consent is 13. Using your logic, it is only right that tourists should go there and have sex with children.
Comment by A. Greenspan — October 28, 2010 @ 1:02 PM
That is incorrect. Corporation tax in Ireland is 12.5% for ALL companies. I live in Ireland and I have a company here.
Comment by Aidan Connolly — October 28, 2010 @ 1:26 PM
Google is a corporation. Even though it may have the rights of an individual it has no morals. It is a fact that morals and ethics are human traits and can not be conferred to corporations. To say that the individuals running corporations should do what is moral, when doing what is immoral is still legal, is breaking the corporate officer's fiduciary duty to its investors. Laws must be changed for this to stop.
If it was profitable for corporations to have sex with children in Nigeria, and corporations had genitalia, then they would. The only way to stop them is to make laws and enforce them. Laws and their enforcement is the only morals a corporation has. Anyone that tells you different is uninformed or being paid by a corporation to tell you otherwise.
Comment by SteveE — October 28, 2010 @ 11:18 PM
@Aidan. you need to look into your laws more carefully. 25% is the corporate tax rate for non-trading income, this would include investment, dividend, real estate sales, rental, and certain types of natural resource exploitation. Oil and gas companies operating in the Porcupine Basin have an additional 15% tax on top of the normal 25%. Close corporations which do not distribute their income to their partners are charged 20%.
Ireland has been aggressively altering their tax laws since 1999 to attract foreign direct investment and specifically to attract foreign holding companies. Recently the laws were changed to drop taxation on certain types of investment income paid on foreign trading income from 25% down to 12.5%. Other recent changes have eliminated taxes on certain foreign dividends.
Suffice to say that Ireland has some interesting tax regimes for companies. They laws are not as simple as you suggest. The Irish government has been effective at gaming a complex web of international tax laws to make it easy for companies to create Irish shell companies through which profits can be pumped to reduce a parent company’s overall tax burden.
Comment by A. Greenspan — October 29, 2010 @ 1:45 AM
Well, for all those pointing fingers – how many fortune 500 companies are there that don’t take advantage of legal tax loopholes?
And if you’d be running your own business – would you rather see the profits of your labor go into the hands of Uncle Sam, who – as every entrepreneur can attest to – usually does more to stifle entrepreneurs than to support them?
Comment by Bangkok Sightseeing — October 29, 2010 @ 2:52 AM
But starbucks don't say like " doing no evil".
Comment by vzy — November 5, 2010 @ 1:42 PM
Yes Ireland does have some interesting tax mechanisms and for the latest update we can see where Ireland with it's corporate pimps are today "Bankrupt" Good work there Ireland and thanks so much for a job well done.
Comment by howard — November 29, 2010 @ 10:46 PM