IRS opens investigation into Google tax practices

IRS opens investigation into Google tax practices

Summary: Google may have dodged $3.1 billion in federal income taxes over 3 years by funneling profits through subsidiaries in Ireland, the Netherlands and Bermuda.

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The United States Internal Revenue Service (IRS) has opened an investigation into Google's practice of saving about $1 billion a year in federal income tax by funneling profits from its US and European business units into countries with lower tax rates, Bloomberg is reporting.

The techniques Google used, referred to as the "Double Irish" and the "Dutch Sandwich," involved moving profts through Ireland, the Netherlands and Bermuda in order to get the most favorable tax rates possible. In fact, in the second quarter of 2011, Google paid an effective tax rate of 18.8 percent, about half of the average combined US and state statutory rate of 39.2 percent.

A large part of the issue, according to Bloomberg's unnamed source, is Google's valuation of software and intellectual property that was licensed abroad. In other words, Google may be attributing acquisitions (like the $1.65 billion YouTube purchase) to its foreign subsidiaries and paying less in taxes for having done so. It's estimated that Google may have saved $3.1 billion over three years by following this method.

We're short on official details: the IRS hasn't made the audit official and doesn't comment on individual taxpayers regardless, and the French tax authorities have launched their own investigation but are following that same rule of silence.

The Guardian, which has put together its own timeline of Google's international money trail, got the following statement from a company spokesperson:

"We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate. We make a very substantial contribution to local and national taxation and provide employment for over a thousand people in the UK. We also generate significant revenues for other companies, and last year gave more than $6bn to our AdSense publisher partners, including newspapers and broadcasters across the world."

Or in simpler terms, Google is saying that you can argue all you want about the ethics of this kind of tax strategy, what it's doing is perfectly legal and ultimately beneficial. And if the brass at the IRS doesn't like it, it's up to them to prove Google wrong. But what's one more legal battlefront to Google?

Topics: Government, Banking, Google, Government US

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38 comments
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  • RE: IRS opens investigation into Google tax practices

    hummm. Government or Google. Who could use this money better??? I wonder. The one who made it, or the one who wants a pay cut.
    tatiGmail
    • RE: IRS opens investigation into Google tax practices

      @tatiGmail

      Google = crooks
      Rob.sharp
  • My bet is Google is 100% legal on this.

    Argue what you want, but my guess Google is 100% legal on this. Make the tax code simpler if the US government wants to change it.
    Bruizer
    • You are probably right.

      @Bruizer That is why we should go FLAT TAX. No deductions, no loopholes, no IRS.

      Everybody pays their share and absolutely no funneling money to offshore offices.
      wackoae
      • RE: IRS opens investigation into Google tax practices

        @wackoae A FLAT TAX will not get rid of the IRS. The FAIRTAX will. Read more about it at www.FAIRTAX.ORG
        jw_h@...
      • RE: IRS opens investigation into Google tax practices

        @wackoae
        What a pipe dream?? No more IRS??? Even with a flat tax someone will need to keep an eye on the crooks. I expect with a flat tax without all the deduction they are allowed, they will cheat more not less. What do you think???
        eargasm
      • RE: IRS opens investigation into Google tax practices

        @wackoae If EVERYBODY pays, it it NOT fair. The current federal income tax code provides a very effective redistribution of wealth, where currently only 53% of filers pay anything, and the other 47% either pay nothing or get money back. If you take away this discreet form of welfare, how fair is THAT to poor folks?
        HackerJ
      • RE: IRS opens investigation into Google tax practices

        @wackoae Maybe the US should price match and lower their tax rates LOL
        LarsDennert
      • RE: IRS opens investigation into Google tax practices

        @wackoae <br><br>None of this is relevant, because none of them address income U.S. companies derive from overseas sources and don't bring back. Again, no one except Google and the IRS have all the details, but looking at the gross numbers presented in this article, Google paid 100% of their U.S. taxes on U.S. earnings, which is a far cry better than GE, GM, or Apple have done. If we go to a "pay it where you made it" model, the U.S. government would still get $0 of the revenue in question. Unless Google brings that money into the U.S., there is no fair, ethical, or legal basis for taking any of it, and that's just tens of billions less spent on jobs in the U.S.
        tkejlboom
      • RE: IRS opens investigation into Google tax practices

        @LarsDennert <br><br>A valid point, the U.K. for instance would rather charge Google 30% to bring it there and make it up in the pay roll taxes. They've been outdone by Ireland, though. After the banking disaster Ireland orchestrated(not the global failure as much as their personal part in the subsidized growth, derivative trading, and bailouts in the form of promising to back 100% of deposits even though that exceeded Ireland's GDP), the datacenters based their are probably the ONLY thing propping up their economy.
        tkejlboom
  • RE: IRS opens investigation into Google tax practices

    This is real easy to fix! Become competitive in the global tax game and you will not see this happening... Keep charging more and more then you will see more of this and more jobs leaving our country.
    slickjim
    • RE: IRS opens investigation into Google tax practices

      @Peter Perry Sigh. U.S. corporations are already paying some of the lowest *real* tax rates in the developed world. Please don't weep for poor, oppressed billion-dollar firms.
      jgm@...
      • Corporations have no feelings!

        @jgm@...

        They don't care that you don't like them. It's really simple, the bean counters are already looking at bottom lines and outsourcing to India. Right now, all we're doing by penalizing companies for bringing foreign money back into the U.S. is encouraging them to expand overseas.
        tkejlboom
    • RE: IRS opens investigation into Google tax practices

      @Peter Perry
      I believe the fact they shifted taxes from one of the lowest in the world (Ireland) to a lower (Bermuda) says your concept is bs (google it to find the links). Unless all taxes were the same in all countries multinationals will try to move their taxable income to somewhere that gives them the best net.
      Redhooker
    • RE: IRS opens investigation into Google tax practices

      @Peter Perry You might want to check on international tax rates. The US has some of the lowest rates in the world.
      ItsTheBottomLine
  • this is the lame competition

    instigating the bureaucrats against the leader in the market.
    The Linux Geek
  • RE: IRS opens investigation into Google tax practices

    That sounds about right for Google. They don't care about laws! You know, laws like privacy, copyright, patent . . . and now maybe even tax laws.
    rmark@...
  • RE: IRS opens investigation into Google tax practices

    Look out Google, the nut job "Occupiers" are coming for you.
    tommy.perez@...
    • RE: IRS opens investigation into Google tax practices

      @tommy.perez@... That was my first thought too. Some of the occupiers have even mentioned Google by name as not paying enough taxes and sending jobs overseas. The funniest part about the occupiers' argument is they want MORE taxes on the corporations, the same thing that made them look for loopholes and send jobs overseas in the first place! The definition of insanity: doing the same thing over and over again while expecting different results.
      10kwfence
      • RE: IRS opens investigation into Google tax practices

        @10kwfence So if we just give Google everything it wants and don't make them pay any taxes, it'll all be ok? And if you read Google's statement, they claim they have the obligation to pay the lowest taxes possible. Nowhere to they complain that they were forced to do this by high tax rates, so they'd still do it regardless.

        Your ideology is blinding you to reality.
        jgm@...