Google explains why it's built a $30bn offshore war chest

Google explains why it's built a $30bn offshore war chest

Summary: Why does Google stash a few billions outside of the US? And what was the $5bn acquisition that fell through?

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TOPICS: Google, Cloud
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Google has revealed that it has a $20bn to $30bn war chest outside the US to fund future acquisitions of overseas companies, such as a $5bn deal it scrapped last year.

The company revealed the size of its foreign-held coffers in a letter responding to questions by the US Securities and Exchanges Commission (SEC) over the company's plans for the earnings it keeps offshore. The SEC wanted more specific details on how Google intends to reinvest those funds into its foreign subsidiaries.

As reported by Associated Press, although the letter Google sent to the SEC is dated 20 December last year, it was only published this Tuesday. 

Google didn't outline a timeframe for when it plans to spend the $30bn reserve on acquiring foreign businesses, but said the money is necessary to fund the company's future expansion, which will be driven by operations outside the US. It noted that in 2012, half of its revenues were earned in non-US markets.

According to the letter, Google recently scrapped a deal to buy a foreign company that was worth an estimated $4bn to $5bn. Should the sale have gone through, it would have dwarfed Google's 2013 acquisition of Israel-headquartered social mapping startup Waze.

The company highlighted the Waze acquisition accounted for the bulk of the $1.4bn it spent across 20 acquisitions in 2013, and was funded by Google's "cumulative indefinitely reinvested non-US earnings". In other words, cash that's not being repatriated to the US anytime soon, which has been the source of criticism that Google — like many major tech companies — avoids paying US taxes.

Google also holds those earnings offshore to fund components of US deals, such as the $12.5bn it initially spent to acquire Motorola Mobility, a company that it is now selling to Lenovo for $2.9bn.

"[O]ur existing cost sharing arrangement requires our foreign affiliates to fund the acquisition of the foreign technology rights of our domestic targets to comply with US tax law," it notes.

According to Google, the amount it holds overseas for potential investments will only go up, having risen from $18bn in 2010 to $33bn in 2012.

"We anticipate that any annual incremental growth in the cumulative indefinitely reinvested non-US earnings from year to year will continue to scale at a consistent rate with our overall needs to support continued expansion plans in future years," it said.

As of March this year, Google’s foreign subsidiaries held $34.5bn of its total reserves of $59.5bn.

Two other assets the company uses billions in foreign earnings to support are its data centres in IP development.

Google said it has earmarked between $2bn and $4bn on new datacentres outside the US, such as the new facilities it's built in Finland, Taiwan, Singapore, Belgium, and Ireland — and now has a preference for owning rather than leasing property they're housed on.

Google estimated its 2013 capital expenditures across these regions would exceed $1bn and estimates it will spend $4bn on strategic property purchases in "2013 and beyond".

The company also said that half the $6.8bn it spent globally on R&D in 2012 was funded by foreign earnings.

Google did not respond to request for comment on the letter.

Read more on Google

 

Topics: Google, Cloud

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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  • Corporations

    The corporate entity THE UNTIED STATES OF AMERICA channels to private banks and financial institutions, and foreign entities, in interest on its debts, almost the same amount it brings in through another corporate entity called the IRS (by employing a shady arrangement called an "income tax").

    I can't imagine why the people at Google are not enthusiastic.
    Singularity Point
    • spelling UNITED

      THE UNITED STATES OF AMERICA was incorporated in the 1800s and went bankrupt some time in the 1930s.

      The states and the Fed. government no long issue their own money. Private corporations have usurped that power.

      Instead, the defacto gov't issues bonds - promises to pay with interest - which are then bought by banks. The banks then sell the bonds to the Federal Reserve (another corporation) which then issues currency (Federal Reserve Notes, printed a few pennies per bill no matter the denomination) to the banks.

      Then the banks work the system with their double sided book keeping. After receiving currency from the Federal Reserve, they then turn around and engage in the practice called "fractional reserve lending": basically they create interest bearing currency out of thin air. They create it out of thin air, but the sword at people to pay it back.


      Notes:

      The only "real money" in the American land is the coinage. All else is evidence of debt.

      The Federal Reserve is not Federal, nor is it a Reserve.

      And it has never been audited, maybe because the confiscated gold is probably mostly all in Europe now? We don't know, there's never been an audit.

      Confiscated gold? Yes, they confiscated the gold of American citizens back in the 1930s.

      The Federal Reserve is a for profit corporation that pays dividends to foreign owners: huge dividends, by law "limited" to 6% per year.

      What you think is the Federal Government is really a corporation.

      --

      To all intents and purposes we have the sad situation where the Americans' country isn't their own, and hasn't been for a long time.

      You might look into JFK and Executive Order 11110.

      Today, a few raise the concern, e.g. Ron Paul, but the corporate media make sure to do any hatchet job necessary to keep them at bay.

      --
      Singularity Point