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

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.

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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

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  • Right...

    ...this is specific to Google or technology firms? Every sizable corporation in the world does this type of tax dance.

    http://www.nytimes.com/2011/03/25/business/economy/25tax.html?_r=1&ref=business
    @...
    • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

      @PatKelly Question, do Taxes create jobs?
      tatiGmail
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        @tatiGmail <br><br>No. Question, do roads, water and sewer systems, fire and police departments along with military defenses build themselves?<br><br>Not that taxes shouldn't be limited but gimme a break ...
        noagenda
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        @tatiGmail

        They help create public sector jobs, and they help fund massive government-backed infrastructure projects that creates private sector jobs.

        Most importantly though, companies paying the corporation tax they should be paying means government can collect less tax off me.
        OffsideInVancouver
      • CORP tax should be ZERO

        Exactly why do these progressives (read parasites) believe they somehow deserve a share of the fruit of someone else' labor while sitting on their idle butt contributing nothing?
        LBiege
      • There should be a single

        Flat tax for all.<br><br>Or better yet. Just push it on 5 items.<br><br>a) Fuels / Electricity (energy)<br>b) Communication<br>c) Water<br>d) Transportation<br>e) Assets.<br><br>Very few simple write offs should be added. <br><br>1) A fixed amount (say 1000 dollars/year) should be credited to a company for each none executive job they hold. Limiting write offs to no more than 5% of the taxes they pay. <br><br>2) Anyone can write off up to 5% back of for charitable causes for non profit organizations that don't apply for patents. Or for education services that train people without jobs. Or provide healthcare to those that need it and cant afford it. Providing a very low cost services to the country.<br><br>Key word here is Simple and no more than 10% write off<br><br>No matter how you cut the mustard, the consumer will end up paying all taxes one way or another as its always been through history.<br><br>People below poverty levels should not pay taxes, but should be limited in the benefits they receive to items that can get them back on their feet (avoid leaches).<br><br>Lets avoid these foolish loopholes, that make us pay more taxes than we should (GE's profits this year come to mind). <br><br>The more someone uses anything, they proportionally pay their dues. If they have more assets and wealth, they pay their share. So its fair on the poor and the wealthy equitably.<br><br>All foreign profits pay a tax in this country if the company operates in the country (they want this market, they pay their share.. say 15% of foreign profits, this is half of what Apple asks for)<br><br>I know.. its utopia, let me dream, its midnight after all here.
        Uralbas
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        @LBiege asks an often rhetorical question, but I'll give him a simple answer: the wealthier you are, the more benefits you gain from a stable and orderly society. Taxes the vehicle to pay for that society.

        Consider the opposite: no taxes, but you pay for everything out of your own pocket. The richer you are, the more of your own money you must expend to keep what you have. Feudal lords understood this concept quite well. Few of them were ultimately successful in protecting their assets (and their lives) from the masses.
        terry flores
      • @noagenda

        Roads: gasoline taxes. Covered. Water and sewer systems? Utilities fees. Covered. Fire and police departments? Local property and sales taxes covered. Defense? About 30% of the current federal budget. I would be all in favor of reducing federal taxes by 67%.
        fr_gough
      • @uralbas

        and why do you gain those benefits from an orderly and stable society? Because you are investing your wealth in economic activity, providing jobs, investment capital etc. In fact, you are contributing vastly more than a middle class or poor person to economic activity and prosperity. Therefore, according to your logic, the wealthier you are, the less you should be taxed.
        fr_gough
      • Actually, frgough@..., it's about 19-20% on defense

        @tatiGmail
        It comes out of the 30% of what is known as "discretionary spending". Defense spending is about 4.7% of GDP.

        It's actually down from when Regan was in office, at which point it was something like 25%
        John Zern
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        @tatiGmail - tax cuts haven't, based on the unemployment reports I'd read over the previous decade, when we were all told "tax cuts create jobs".

        Still, they'd rather dole out more corporate welfare, bailouts, especially to companies THAT offshore jobs in the first place.

        And yet only the working class is pointed as being the lazy greedy leeches. Bizarre.
        HypnoToad72
      • Close the Tax Loopholes; Create More Jobs

        Taxes do create jobs in the form of national defense. National Security is our single biggest expenditure. Our tax dollars support some of the biggest industries this country (still) has.

        Let's bring it closer to home: Do you support our troops? Do you want to them to be adequately protected and paid for their sacrifices --- or to return home to services that will help them acclimate to life in a society that is largely oblivious to the horrors they have endured? If so, don't support multinational-size corporate loopholes.

        If that doesn't move you, look at the headlines. The US is about to DEFAULT. If we keep handing out tax breaks like candy because the bully-pundits and their lobbying-firm backers "claim" it will stimulate jobs, we are just kidding ourselves. Did TARP stimulate jobs? In reality, haven't we accumulated more tax loopholes than at any point in US history --- and did it prevent us from going into an economic crisis?

        Apparently, the dogma that fewer taxes = more jobs isn't so cut and dried.

        Make no mistake: I want taxes off the middle class, small and medium businesses. When we're talking about economies of scale, however --- mega corporations that have international reach --- it's more akin to talking about nations because their revenues rival entire nations.

        Closing tax loopholes and addressing the perpetually ignored topic of TRADE DEFICITS might just save us from having our US dollar die out as world reserve currency (which would plunge us into Third World poverty). As long as our T-bills are going down in value --- which foreign nations such as China are heavily invested in --- our digital currency is increasingly debased and our jobs and tax revenues are continually offshored, we will bleed Red Ink. Red Ink --- even if it is governmental Red Ink --- is not good for business, any kind of business. Companies both large and small do not hire and expand in a volatile and highly uncertain economic climate --- a climate they themselves have contributed to by continually finding ways to evade taxes in the countries in which they do business (again, we're talking about Big Business, not the local sort)!

        The tax issue has always been a wild card. It's nothing new and certainly not the latest or greatest culprit. Going broke at the federal and state level, on the other hand, could be the death knell.

        The states and US government must remain solvent any which, way or how they can. And we voters should be smart enough to care that they do. If not, there will be even fewer jobs and more inflation of food/energy in the months and years to come. In this culmination of a globalized economy we are too dependent upon everyone else and they in turn on us. We've created this fiscally codependent world, and now we have to deal with the consequences of this decades-long romance with globalization (in the absence of equitable free trade agreements).

        I hope more people begin to wake up to the reality that each and every one of us, whether we have a "government job" or not are mutually dependent on both private industry and government for better or for worse. There wouldn't be a USA without some degree of cooperation between the private and the public interest. And by that I don't mean fraud, I mean fair play.

        If a pundit convinces you to cry for a multinational you've got bigger problems to worry about.

        Warren Buffet is on record stating his secretary pays more taxes than he does:

        <a href="http://www.timesonline.co.uk/tol/money/tax/article1996735.ece" target="_blank" rel="nofollow">http://www.timesonline.co.uk/tol/money/tax/article1996735.ece</a>

        A Swiss banker who "told all" to WikiLeaks has been shut up swiftly to prevent us from understanding the shell game that is international commerce:

        <a href="http://www.businessweek.com/ap/financialnews/D9KLHDFO0.htm" target="_blank" rel="nofollow">http://www.businessweek.com/ap/financialnews/D9KLHDFO0.htm</a>

        And in the 2007 documentary film "IOUSA", former Comptroller General David Walker warns that ultimately we will not be able to afford to pay our troops:

        <a href="http://www.iousathemovie.com/" target="_blank" rel="nofollow">http://www.iousathemovie.com/</a>

        And in one final point, a US Accountability Office study in 2008 found that a whopping 2/3 of US corporations pay no federal income taxes whatsoever and 72% of foreign corporations pay nothing to us, either:

        <a href="http://www.reuters.com/article/2008/08/12/us-usa-taxes-corporations-idUSN1249465620080812" target="_blank" rel="nofollow">http://www.reuters.com/article/2008/08/12/us-usa-taxes-corporations-idUSN1249465620080812</a>

        Bottom line: Contrary to all the urban legends floating around, we're pretty generous to those who receive both our charity overseas and our tax breaks here at home. The people who are getting the shaft are we the voter and/or owner of a SMALL business. Big business is in another category. They hardly belong in a "victim class".
        NewsView
      • Yes.

        Yes. Thanks for asking.
        Douglas Barnes
    • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

      @Everyone....Why are you B1tChing??? You are the problem becuause you use google everyday. Why not abandon them and use another engine that is more friendly.
      frvr@...
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        @frvr@... same reason I still have Windows to spite wanting to drop it for something else.
        Socratesfoot
    • Welcome to the new

      @Tom Foremski : ironically this has been going on for centuries, with Adam Smith "invisible hand" working as expected.<br><br>You say that they should "support the local community tax base". <br><br>What "local community"? Bay Area?, U.S.A.? Western Hemisphere?<br><br>These companies are global citizens which leverage millions from their also global audience. They reside on one place because that place offers the best launchpad for that initiative, just like Hollywood does for global movies.<br><br>Social responsibility is not a synonym to U.S. needs. If the Bay offers them the best in tech, Delaware the best in corporate incorporation, Ireland the best on income tax and Bermuda the best site to host IP management, let be it. <br><br>Don't be a cry baby and expect the U.S. to be the best in everything (hegemony) on the 21st century. They had it on the 20th. The British Empire had it on the 19th (through strong arming and colonies) and, before that, the Spanish Crown had it on the 16th (using <i>conquistadores</i>, <i>misioneros</i> and lets not forget <i>the holy inquisition</i>).
      cosuna
    • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

      @LBiege - labor creates all wealth. And since "cost" is a factor, imagine how much lower all of those products would be if CEO jobs were offshored? Hey, they get $20 mil JUST for being fired because they screwed over the company and its workers. That could last a person six or seven lifetimes with ease... if you ask me, the laborers are being scapegoated.
      HypnoToad72
    • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

      @PatKelly It's much easier for technology and pharmaceutical firms. If I make cars, it's clear where they are made. If I develop software or other intellectual property, it's very hard for an outside agency to determine where the property was developed, allowing origins to be shifted to the lowest taxed subsidiaries. It also allows filing of patents and licensing of IP that, again, wouldn't be feasible to do if you were manufacturing or probably even offering services.
      jgm@...
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        It boggles my mind that people believe that because you're rich you have a right to anything you can grab and hold on to. Start with the things libertarians agree we ought to pay taxes for - roads and police. Now do some math - what are roads worth to somebody who lives alone in a studio apartment and drives to work? Call that one unit. Now think about yourself, maybe you have an income of $100K, a family of four and two cars. You use the roads about five times as much, considering the kids. When your house is broken into the cops will stay more than five minutes and they'll follow up later, but the apartment visit will be one-time 3-5 minutes max. Your kids are in school (95+% of kids are in public schools and if yours are in private school, remember they can choose not to take the kids with cerebral palsy and Downs Syndrome - don't want your kids in with those, well there's always euthanasia!) Even considering their shortcomings, you are living in a fantasy if you don't recognize that the likelihood of your house getting broken into is reduced by the public schools and truancy laws. Your retirement investments and a chunk of your income depend on someone else's work product, which means the money the government spends on roads, cops and schools for the people who work for you also benefits you. If you have an eight-figure income, that is dependent on the ability of thousands of people to get to and from work, stay healthy enough to work and not get mugged or killed at home or on the way. DO THE MATH! <br><br>Even if you are deaf and dumb to issues of right and wrong, fairness dictates that people who are getting a great deal on their taxes should be asked first when there is a real need for an increase. Since taxes have been steadily decreasing since JFK was in office, once in a while there needs to be an adjustment. Flat-tax supporters don't see it that way, of course, because they have a God-given right to get a better deal that their neighbors so long as they whine loud enough.
        dontspamjim@...
      • RE: How Google shifts profits to Bermuda to shrink taxes by billion$

        (sorry about following message landing in wrong part of this forum - it should follow "Do Taxes Create jobs?" sub-thread)<br><br>It is strange to see how multinational tech companies are sitting on mountains of cash at the moment and blaming governments for economic problems. Of course, there is always someone there to say that the modest taxes which are charged today are the root problem, not the failure of industry to do its job and reinvest. It is nice when they do invest here in developed countries, and it's really interesting that they are not still pouring money into countries with cheap labor as aggressively as in the recent past. Maybe there are other reasons for poor business performance that greedy workers. (Ya think?)
        dontspamjim@...