Has Google Cheated America Out of Billions of Tax Dollars?

For a company with the unofficial motto of “don’t be evil”, Google’s tax practices seem a little bit…sketchy. The company has used various loopholes in numerous countries to save $3.1-billion in taxes. While I understand that a publicly traded company is supposed to maximize profits to keep shareholders happy, it’s a little funny that the “don’t be evil” company has cost America money when the country has an enormous deficit. It’s even funnier when you consider that Google is based in California, a state with a wrecked budget that has resorted to imposing unpaid furloughs on government employees.

Here are the details on Google’s scheme via Bloomberg:

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 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

Don’t be evil, hey?

Google is hardly the only American company engaging in these practices, but it’s one of the biggest and most influential. What do you think of these loopholes? Is it cheating America out of money? Or is it fiscal cleverness that Google is obligated to pursue on behalf of its stockholders? And yes, I fully expect RPadholic smartguy for a full analysis from an accountant’s perpective.

Source

Author: RPadTV

https://rpad.tv

22 thoughts on “Has Google Cheated America Out of Billions of Tax Dollars?”

  1. They're hardly the only company out there to take advantage of the corporate tax code. You hear a lot of politicians complaining that we need to cut the corporate tax rate, but due to all the loopholes companies like Citicorp, Bank of America and General Electric all paid a combined $0.00 in taxes last year. So yes, each of us paid more in taxes than 2 major banks and GE combined.

      1. GE owns MSNBC, a "news" network whose anchors rails against this sort of thing on a daily basis.

      2. @All

        I saw this clip a while ago but it seems appropriate now too. Everyone should check this out for the information and a laugh.

  3. I'll give a better reaction when I'm not on my phone later.

    Let me add this though: Corporations don't pay taxes, its customers do. If a Corp has higher taxes then that is passed along to the consumer as well as labor cuts.

    Ive observed considerably more underhanded tactics in mom and pop businesses as well as small LLCs

  4. Oh wow! This is awesome. I'm going to have my wife read the Bloomberg article and post her analysis on this site. She is an international tax consultant for a prominent legal firm here in Miami and this sort of thing is her expertise.

    -M

  6. Both the "Double Irish" and the "Dutch Sandwich" sound dirty as hell.

    as in:

    "I gave her the Double Irish" or "Me and my buddy pulled a Dutch Sandwich on some girl".

    1. Google’s income shifting — involving strategies known to lawyers as the “Egyptian Sunglasses” and the “Boston Heater” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

  7. Ok, here's my wife's take on the subject:

    Smartguy, please pay attention. I'm sure you two will never shut up if you ever meet and start talking to each other.

    ——————————————————————–

    Well, actually, this article was forwarded to us by one of the federal partners yesterday. He said this:

    “This article appeared in today’s Bloomberg. Its tone, especially coming from a business news service, is very pejorative – almost as if companies doing this are “evil.” This is ready-made for our political circus to seize and scandalize.”

    Having said that, I think that Mr. or Ms. (I cannot tell by the name) Jesse Drucker does not know much about what he or she is reporting on. It seems to me that he or she has decided to base an entire article on one isolated fact. I think that trying to use Google’s effective tax rate as a reason why the United States is struggling financially is absolutely absurd. Additionally, to say that the U.S. somehow deserves to tax those earnings is even more absurd. The “evil” comments towards the end are impudent and malicious.

    The primary reason why I find it very ignorant of this person to try to make some connection between these two separate issues is that they do not mention anything about repatriation of the earnings. Generally, in an international setting, where a U.S. corporation owns a foreign corporation, taxation on the foreign (Non-U.S.) earnings earned by the foreign corporation is deferred until those foreign earnings are repatriated or deemed repatriated back into the U.S. in the form of distributions or deemed distributions to the U.S. corporation owner. However, because Google is still expanding in other countries, then it is just common sense that they would not repatriate the earnings and instead keep investing the earnings abroad without the U.S. taking a huge chunk of the earnings, when the U.S. has nothing to do with those earnings. Any competent business manager would do the same thing regardless of size unless they absolutely needed the money in the U.S. for some reason.

    In the case where a distribution is made (or deemed made) to the U.S. owner, a corporation like Google may likely be entitled to a foreign tax credit against the U.S. tax on those foreign earnings. The foreign tax credit amount may be similar to the amount of tax that has been paid to other countries on that same foreign income and will be limited to the U.S. income tax rate (currently up to 35%). In Google’s case, not only is it beneficial for tax purposes, but it is also better for financial reporting purposes. I am sure that Google has pledged under APB 23, a financial reporting rule, that they will keep the earnings offshore indefinitely. This is very common amongst large publicly traded companies that have international operations and are expanding abroad. This allows them to avoid accruing any U.S. income tax expense on those earnings (less income tax expense reported). They also already report most, if not all, of the foreign earnings on their consolidated financial statements, regardless of whether they are taxed in the U.S. or not.

    The second reason why I find this article very misleading is that there could be many reasons why Google might have a very low tax rate. They are in e-commerce, which is a relatively new industry to some not-so-sophisticated countries. Some countries may tax companies that are organized under their laws, while other countries tax income based on where the income is earned or physical presence within the country for a certain number of days out of each year. Some countries may even provide tax holidays for the first several years in which Google does business in those countries. Whenever countries differ in who or what income they will tax, there is always planning opportunity somewhere. It seems like in Google’s case, according to Drucker, they have a foreign company that owns the intellectual property and have transfer pricing fees being charged to other group companies from the offshore entity. That is great planning and I am sure very common in many sophisticated multinationals. Again, it’s nothing a competent business manager wouldn’t want to do. They can choose to own whatever the hell they want in whatever entity they want. It is each country’s responsibility to ask for transfer pricing documentation and make sure that they are getting their proper tax base. Again, I don’t see how this is cheating the U.S. out of anything.

    My point is that this has nothing to do with the U.S.’s financial struggles. The purpose of U.S. international tax policy should always be to maintain an equal playing field for U.S. and non-U.S. enterprises. If they lose sight of that, then in the long run, they are going to be losing a lot more than billions of dollars. I could say that this Mr. or Ms. Drucker comes across as a moronic, spiteful airhead who is just jealous that he or she did not think of this him/herself. But then again, this statement would only be based on this one isolated article and I like to think I myself am not that ignorant. J

    We can discuss in greater detail later if you like.

    -L

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    (Name witheld for privacy purposes)

    So there you go. The article is miselading. Bias in journalism? I'm shocked!!

    -M

    1. What great a read first thing in the morning thank you L!

      I know if I were in that position I would be doing the same.

    3. I agree with that 100%. In fact, the repatriation was what I was going to hit on for Ray but Mrs. Iceman and her associate said all that can be said.

      I would enjoy talking to your wife. It would be boring for those around us, but no matter. It does help that my girlfriend is an accountant though. Oddly enough she hates the tax side where as I hate the financial side. I don't care what's on your books…just give me the Financials so we can deal with Uncle Sam.

      All this said, the only thing Google could be doing detrimental to the taxpayer is not building their 1GBps fiber because they are perhaps trying to get stimulus funds to do so. Verizon halted FiOS expansion for that reason in addition to focusing on getting subs.

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