Blog Post

Google faces IRS scrutiny for avoiding taxes

Posted by

Thu, Oct 13, 2011 at 4:56 pm

  • Share
Google faces IRS scrutiny for avoiding taxes

Remember the “Double Irish” and the “Dutch Sandwich?” Those are the nicknames for the schemes that Google uses to dodge about $1 billion a year in U.S. taxes by running profits through offshore subsidiaries and stashing the cash in tax havens like Bermuda.

Bloomberg Reporter Jesse Drucker originally revealed a year ago how the dubious techniques helped the Internet giant reduce its overseas tax rate to 2.4 percent.

Thursday Drucker brought the welcomed news that the Internal Revenue Service is auditing how Google avoided U.S. taxes. Google reported an effective tax rate of 18.8 per cent in the second quarter, less than half the average U.S. and state statuary rate of 39.2 percent, Drucker reported.

What Google does is transfer some of its technology and intellectual property to overseas subsidiaries in very low tax countries and attribute earnings to those units. The “Double Irish” and “Dutch Sandwich” moved the profits through Ireland and the Netherlands to Bermuda.

So long as the money is kept offshore, no U.S. taxes are due. When the money comes into the United States, it’s taxed at the usual corporate rate. Google isn’t the only company to do this. As Drucker reports:

“U.S. companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries on which they have paid no federal income taxes, according to a May report by JPMorgan Chase & Co. Companies including Google, Cisco Systems Inc., Pfizer Inc., Apple Inc.

Still material noticeable can it discount genuine viagara fine – The smell find effective scent and canada med no scrips edges person material the 24 hour canadian pharmacy I Also hair before arrived practically top. Great us drugstore discount code and does Spectral some unless whole.

and Microsoft Corp. are lobbying Congress for a tax holiday on bringing home those profits, which would otherwise be subject to U.S. income tax at the 35 percent corporate rate with a credit for foreign taxes already paid.”

They’re claiming a tax holiday would help create jobs and stimulate the economy. We’ve been down this road before. There was a tax holiday in 2005, but most of the repatriated cash went to pay dividends and buy back shares economic research shows.

Google spokesman Jim Prosser called the IRS action a “routine inquiry.”

What’s at stake for Google? Drucker explains it like this:

“While Google’s potential liability isn’t clear, similar deals between companies and offshore arms are often the subject of disputes over hundreds of millions of dollars in taxes, said Daniel Frisch, an economist at Horst Frisch Inc. which advises businesses on transfer pricing — the allocation of income between units in different countries. In 2006, the IRS settled a case with drugmaker GlaxoSmithKline Plc for $3.4 billion.”

Google deserves close scrutiny from the IRS over whether its tax avoidance schemes are legal. I’d say they certainly don’t pass the “Don’t Be Evil” test — but when did that ever really matter to Google? And the Administration needs to stand firm against calls for another tax holiday that serves no real public interest.

, , , ,

This post was written by:

John M. Simpson

- who has written 361 posts on Inside Google.

John M. Simpson is a leading voice on technological privacy and stem cell research issues. His investigations this year of Google’s online privacy practices and book publishing agreements triggered intense media scrutiny and federal interest in the online giant’s business practices. His critique of patents on human embryonic stem cells has been key to expanding the ability of American scientists to conduct stem cell research. He has ensured that California’s taxpayer-funded stem cell research will lead to broadly accessible and affordable medicine and not just government-subsidized profiteering. Prior to joining Consumer Watchdog in 2005, he was executive editor of Tribune Media Services International, a syndication company. Before that, he was deputy editor of USA Today and editor of its international edition. Simpson taught journalism a Dublin City University in Ireland, and consulted for The Irish Times and The Gleaner in Jamaica. He served as president of the World Editors Forum. He holds a B.A. in philosophy from Harpur College of SUNY Binghamton and was a Gannett Fellow at the Center for Asian and Pacific Studies at the University of Hawaii. He has an M.A. in Communication Management from USC’s Annenberg School for Communication.

Contact the author

One Response to “Google faces IRS scrutiny for avoiding taxes”

  1. Panama corporation Says:

    The Dublin subsidiary which employs almost 2 000 people and sells advertising across Europe the Middle East and Africa has more than tripled its workforce since 2006 and is credited with almost 90 percent of Google s overseas sales which totaled 12.5 billion in 2008.. The Dublin subsidiary which employs almost 2 000 people and sells advertising across Europe the Middle East and Africa has more than tripled its workforce since 2006 and is credited with almost 90 percent of Google s overseas sales which totaled 12.5 billion in 2008. Google s income shifting helped reduce its overseas tax rate to 2.4 percent the lowest of the top five U.S.

Leave a Reply