www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html
Google's income shifting helped reduce its overseas tax rate to 24 percent, the lowest of the top five US technology companies by market capitalization. European headquarters are seen in Barrow Street, Dublin. company logo sits at their European headquarters in Barrow Street, Dublin. Photographer: Paul McErlane/Bloomberg Google Shows How $60 Billion Is Lost to Tax Loopholes Pedestrians walk past the offices of the Conyers, Dill & Pearman law firm in Clarendon House located on Church Street in Hamilton, Bermuda.
Martin A Sullivan, a tax economist who formerly worked for the US Treasury Department. "We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent." In the UK, Google's second-biggest market by revenue, it's 28 percent. Google, the owner of the world's most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc.
budget gap and European Union countries face a collective projected deficit of 868 billion euros. Countless Companies Google, the third-largest US technology company by market capitalization, hasn't been accused of breaking tax laws.
Jane Penner, a spokeswoman for the Mountain View, California-based company. Penner declined to address the particulars of its tax strategies. Facebook, the world's biggest social network, is preparing a structure similar to Google's that will send earnings from Ireland to the Cayman Islands, according to the company's filings in Ireland and the Caymans and to a person familiar with its plans. A spokesman for the Palo Alto, California-based company declined to comment.
subsidiaries that allow for allocating income to tax havens while attributing expenses to higher-tax countries. Such income shifting costs the US government as much as $60 billion in annual revenue, according to Kimberly A Clausing, an economics professor at Reed College in Portland, Oregon.
Dave Camp of Michigan, the ranking Republican on the House Ways and Means Committee, and other politicians say the 35 percent US statutory rate is too high relative to foreign countries.
Murphy, who has worked on similar transactions, estimates that hundreds of multinationals use some version of the method. The high corporate tax rate in the US motivates companies to move activities and related income to lower-tax countries, said Irving H Plotkin, a senior managing director at PricewaterhouseCoopers LLP's national tax practice in Boston. He delivered a presentation in Washington, DC this year titled "Transfer Pricing is Not a Four Letter Word." "A company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally," Plotkin said in an interview. Boosting Earnings Google's transfer pricing contributed to international tax benefits that boosted its earnings by 26 percent last year, company filings show.
Abraham J Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google's tax disclosures. "Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?"
National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google's creation. Taxpayers also paid for a scholarship for the company's cofounder, Sergey Brin, while he worked on that research. Such entries typically describe how much tax US companies save from profits earned overseas.
Obama administration proposed measures to curb shifting profits offshore, part of a package intended to raise $12 billion a year over the coming decade. While the key proposals largely haven't advanced in Congress, the IRS said in April it would devote additional agents and lawyers to focus on five large transfer pricing arrangements. Arm's Length Income shifting commonly begins when companies like Google sell or license the foreign rights to intellectual property developed in the US to a subsidiary in a low-tax country. That means foreign profits based on the technology get attributed to the offshore unit, not the parent. Under US tax rules, subsidiaries must pay "arm's length" prices for the rights -- or the amount an unrelated company would. Because the payments contribute to taxable income, the parent company has an incentive to set them as low as possible. Cutting the foreign subsidiary's expenses effectively shifts profits overseas. After three years of negotiations, Google received approval from the IRS in 2006 for its transfer pricing arrangement, according to filings with the Securities and Exchange Commission. The IRS gave its consent in a secret pact known as an advanced pricing agreement. Google wouldn't discuss the price set under the arrangement, which licensed the rights to its search and advertising technology and other intangible property for Europe, the Middle East and Africa to a unit called Google Ireland Holdings, according to a person familiar with the matter. Dublin Office That licensee in turn owns Google Ireland Limited, which employs almost 2,000 people in a silvery glass office building in central Dublin, a block from the city's Grand Canal. Allocating the revenue to Ireland helps Google avoid income taxes in the US, where most of its technology was developed. The arrangement also reduces the company's liabilities in relatively high-tax European countries where many of its customers are located. The profits don't stay with the Dublin subsidiary, which reported pretax income of less than 1 percent of sales in 2008, according to Irish records. Law Firm Directors This Bermuda-managed entity is owned by a pair of Google subsidiaries that list as their directors two attorneys and a manager at Conyers Dill & Pearman, a Hamilton, Bermuda law firm. Tax planners call such an arrangement a Double Irish because it relies on two Irish companies. One pays royalties to use intellectual property, generating expenses that reduce Irish taxable income. The second collects the royalties in a tax haven like Bermuda, avoiding Irish taxes. To steer clear of an Irish withholding tax, payments from Google's Dublin unit don't go directly to Bermuda. A brief detour to the Netherlands avoids that liability, because Irish tax law exempts certain royalties to companies in other EU- member nations. The Dutch Sandwich Inserting the Netherlands stopover between two other units gives rise to the "Dutch Sandwich" nickname. "The sandwich leaves no tax behind to taste," said Murphy of Tax Research LLP. Microsoft, based in Redmond, Washington, has also used a Double Irish structure, according to company filings overseas.
Since the 1960s, Ireland has pursued a strategy of offering tax incentives to attract multinationals. A lesser-appreciated aspect of Ireland's appeal is that it allows companies to shift income out of the country with minimal tax consequences, said Jim Stewart, a senior lecturer in finance at Trinity College's school of business in Dublin. Getting Profits Out "You accumulate profits within Ireland, but then you get them out of the country relatively easily," Stewart said.
Irish Department of Finance, declined to comment on Google's strategies specifically. "Ireland always seeks to ensure that the profits charged in Ireland fully reflect the functions, assets and risks located here by multinational groups," he said. Once Google's non-US profits hit Bermuda, they become difficult to track. The subsidiary managed there changed its legal form of organization in 2006 to become a so-called unlimited liability company. Under Irish rules, that means it's not required to disclose such financial information as income statements or balance sheets. "Sticking an unlimited company in the group structure has become more common in Ireland, largely to prevent disclosure," Stewart said. Deferred Indefinitely Technically, multinationals that shift profits overseas are deferring US income taxes, not avoiding them permanently. The deferral lasts until companies decide to bring the earnings back to the US In practice, they rarely repatriate significant portions, thus avoiding the taxes indefinitely, said Michelle Hanlon, an accounting professor a...
|
http://csua.com/feed/