Obama criticises Google for exploiting European tax loopholes (Wired UK)


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Ars TechnicaGoogle continues to expand its use of
legal-but-questionable tax shenanigans as a way to minimise its
overseas tax burden.

According to Irish media reports Friday, in 2013 Google Ireland Limited paid
an effective tax rate of just 0.16 percent on €17 billion (£13.5
billion) revenue, which came to a mere €27.7 million (£22 million).
Google paid €11.7 billion (£9 billion) in “administrative
expenses,” which The Irish Times  reports “largely
refers to royalties paid to other Google entities, some of which
are ultimately controlled from tax havens such as Bermuda.”

David Wilson, a London-based Google spokesman, confirmed the Irish figures to Ars.

Google and many other tech firms have recently come under increased scrutiny for using a quirky Irish tax law arrangement that allows organisations to incorporate in Ireland but legally
route money through other jurisdictions, such as the Netherlands. It’s all done in the
name of drastically reducing tax burdens. The general term is
called “transfer pricing,” although specific tactics involve
colourful names like the “Double Irish” and the “Dutch
Sandwich.”

“Technically legal”

On Thursday, President Barack Obama decried a related practice,
known as tax inversion, in an interview on CNBC
.

“This is basically taking advantage of tax provisions that are
technically legal — but I think most people would say if you’re
doing business here, if you’re basically still an American company,
but you’re simply changing your mailing address in order to avoid
paying taxes, then you’re really not doing right by the country and
by the American people,” he said.

“Keep in mind that what we’re trying to do is to say that if you
simply acquire a small company in Ireland or some other country, to
take advantage of the low tax rate, you start saying, ‘We’re now
magically an Irish company’ despite the fact that you may only have
a hundred employees there,” the president continued. “And you’ve
got 10,000 employees in the United States. You’re just gaming the
system. You are an American company. You continue to benefit in all
kinds of ways from being an American company.”

Google declared $60 billion (£35 billion) worth of revenue in the United States
in 2013. Google’s effective tax rate in the United States has
fallen dramatically from 21 percent to 15.7 percent in recent years
as the company has broadened its use of overseas tax
benefits.

As Google stated in its 2013 annual report, “Our provision for
income taxes and our effective tax rate decreased from 2012 to
2013, primarily as a result of proportionately more earnings
realised in countries that have lower statutory tax rates as well
as the federal research and development credit related to the
American Taxpayer Relief Act of 2012.”

Obama conceded that this tactic was legal, but it might not be a
practice that Google should follow.

“People are paid to maximise profits,” he said. “But people are
also paid to be good corporate citizens. They’re also paid to make
sure that they’re thinking about [that] in addition to shareholder
value. How do you grow a company over the long term? And this kind
of strategy, I think, undermines people’s confidence in how
companies are thinking about their responsibilities to the country
as a whole.”

Last year, the Organisation for Economic Co-operation and
Development (OECD) — a group of the world’s top economies
— decided that it was time to crack down on international
tax shenanigans through meaningful reform.

“I think the way Google and such companies use the Irish tax
system to reduce their global tax bill to negligible levels is
unfair, particularly on more domestically centred firms,” Sheila
Killian
, a finance lecturer at the University of Limerick, told
Ars. “It’s important to stress that this has nothing to do with
Ireland’s low corporate tax rate — this is about firms channeling
billions through the country and out the other side. Very little
benefit to Ireland, very little connection to real economic
activity.”

Bermuda triangle of taxation

Bloomberg first described the process of the Double Irish in 2010. As we’ve reported, here’s how the Double Irish works: a company
sells or licenses its foreign rights to intellectual property
developed in the United States to a subsidiary in a country with
lower tax rates. The result? Foreign profits that come from that
tech — like the rights to Google’s search and advertising
technology, effectively the keys to the kingdom — are now
attributed to that offshore subsidiary rather than the American
headquarters. The subsidiaries have to pay “arm’s length” prices
for those rights, just like an outside company would.

Bloomberg concluded, “Because the payments contribute to taxable income,
the parent company has an incentive to set them as low as possible.
Cutting the foreign subsidiary’s expenses effectively shifts
profits overseas.”

So who does Google license its tech to? A fun little company
called Google Ireland Holdings, headquartered in Bermuda. Bermuda, of
course, has zero corporate income tax. So as a Bermuda company,
Google Ireland Holdings pays none.

Google Ireland Holdings, in turn, owns Google Ireland Limited.
This holding company based in Bermuda is owned by yet
another Bermuda-based subsidiary
, Google Bermuda Unlimited. It
is managed by Conyers,
Dill, and Pearman
, a law firm specialising in such offshore
transactions. That “unlimited” corporation means that the
company is not required to disclose income statements, balance
sheets, and other financial information.

But getting money tax-free from Ireland to Bermuda requires a
stopover in the Netherlands (the “Dutch Sandwich” part) at Google
Netherlands Holdings B.V. This entity, according to Bloomberg, “pays out about 99.8 percent of what it collects to
the Bermuda entity, company filings show. The Amsterdam-based
subsidiary lists no employees.”

This article originally appeared on Ars Technica

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28 July 2014 | 10:40 am – Source: wired.co.uk

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