How Google shifts profits to Bermuda to shrink taxes by billion$

Summary:Google's worldwide operations pay billions of dollars in IP licence fees to its tiny Bermuda subsidiary. The result is it pays the lowest corporate taxes of any US tech company.

There's a fascinating article by Lisa O'Carroll in the UK Guardian newspaper about corporate taxes and how Google [GOOG] uses Bermuda and Dublin, Ireland to shelter taxes.

Here's how it works:

- Google's HQ is in Dublin, which has the lowest corporate tax rate of 12.5%.
- Google, however, wants an ever lower rate so it charges its European business a massive administrative fee by its Bermuda subsidiary.

And that's how a profit of 5.5 billion Euros turns into just 45 million Euros that is taxable in Dublin.

Lisa O'Carroll explains:

The 2009 Google Ireland Limited accounts show the company turned over a phenomenal €7.9bn in Europe for the year ending 2009 – up from €6.7bn the previous year.

The internet giant made a gross profit of €5.5bn, with an operating profit of €45m after "administrative expenses" of €5.467bn were stripped out.

Administrative expenses largely refer to royalties (or a licence fee) Google pays its Bermuda HQ for the right to operate.

This results in Google paying just 2.4% corporate tax — the lowest of the top five US tech companies according to Bloomberg.

This begs the question of why do countries, cities and states try to attract tech companies such as Google when they don't want to support the local community tax base?

Twitter, for example is trying to get out of paying San Francisco payroll taxes.

Yet the Obama administration believes that innovation from companies like Google and Twitter will help build jobs and provide the wealth to eliminate US deficits. Other governments have similar hopes.

That's a highly optimistic view and one that's not supported by the actions of those companies who seek the best deals they can get, and use every loophole to get out of paying a share of their profits to the communities where they live and work.

Social corporate responsibility is an oxymoron. It is investor responsibility that is the highest goal of corporate management.

It's the fiduciary responsibility of executives to maximize shareholder profits — so why do executives at Google, Twitter, etc, talk about social responsibility when their actions show the opposite?

They should Google "hypocrites" because they seem to lack any understanding of their actions and shut up about "corporate social responsibility." It's embarrassing.


Topics: Banking, Google, Government, Government : US

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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