Google saved
$2.4 billion in worldwide taxes in 2014 by shifting 10.7 billion euros ($12
billion) in international revenues to a Bermuda shell company, Alphabet Inc.,
the parent of the Web-search provider, regulatory filings show.
The
amount #Google moved through its Dutch subsidiary, Google Netherlands Holdings
BV, and then on to Bermuda represents the bulk of its profits overseas. The
amount transferred to Bermuda was 16 percent greater than the prior year,
according to documents the subsidiary filed with the Dutch Chamber of Commerce
on Feb. 4 and made available this week. The filing was first reported by the
Dutch magazine Quote.
The
revelation comes as Google faces outrage in Europe over
the small amount of tax it pays in the region. Last month, after Google reached
a controversial 130 million pound ($187 million) settlement with the U.K.
government over an audit covering 10 years of accounts, critics called the
amount "derisory." The deal spawned parliamentary
hearings, a government audit and scrutiny from the European
Union. France and Italy are also reportedly in discussions with Google to
settle ongoing tax disputes. Outside of Europe, legislators in Australia have
in recent weeks questioned whether the company is paying a fair share of tax
there.
"Google
complies with the tax laws in every country where we operate," the company
said in an e-mailed statement.
Dutch Sandwich
Google’s
Dutch subsidiary is the heart of tax structures known as a "Double
Irish" and a"Dutch
Sandwich" because it involves moving money from one Google
subsidiary in Ireland to a Google subsidiary in the Netherlands before moving
it out again to a different Irish subsidiary, physically based in Bermuda,
where there is no corporate income tax.
This
movement of cash enables Google parent Alphabet to keep the effective tax rate
on its international income in the single digits. For 2015, Alphabet reported
its average tax rate outside the U.S. was just 6.3 percent, according to a
calculation using the income from foreign operations and the foreign income tax
reported in its U.S. Securities and Exchange Commission filings.
Figures for 2015 revenue moved through Google’s Dutch subsidiary aren’t
available.
Tax Structure
The
company says this calculation does not reflect the methods actually used to
determine its international taxes in any jurisdiction. Those methods involve
transfer pricing, where payments between various international subsidiaries are
used to attribute profit to the geographies where economic value is deemed to
have been created. The amount of these payments are based on estimates of what
similar transactions with an unrelated company would cost. Google attributes
most of the economic value of its products to its research and development
operations in the U.S. and, in the case of its overseas sales, to its
Bermuda-based subsidiary, which holds the international licenses for Google’s
intellectual property.
The
Irish tax loophole that makes the "Double Irish" possible was closed by the Irish
parliament last year. But companies already using the structure can continue to
employ it until the end of 2020.
Last
week, Tom Hutchinson, Google’s vice president for finance, defended the
company’s tax arrangements before a U.K. parliamentary committee. Noting that
its average global tax rate for the past five years was 19 percent, Hutchinson
said Google paid "a fair amount" of tax worldwide.
He
also said that the complex structure through which Google moves most of its
international profits through its Dutch subsidiary and then on to Bermuda,
"made sense" given that the U.S. government taxes companies on their
foreign income if they bring it back into the U.S. This gives multinationals an
incentive to keep those profits overseas and in locations with little or no
corporate tax.
At
the end of 2015, Alphabet’s foreign subsidiaries were holding $43 billion in
cash untaxed by the U.S., according to the company’s SEC filings.
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