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Google’s 5 Step Plan for Tax Avoidance

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Google, tax strategyGoogle is not only good at finding information and making money; turns out they do pretty well at avoiding taxes on foreign profits as well. This may be no big surprise to you but fully 53% of company profits come from overseas, which would be a hellacious tax bill if it ever came completely due. Google has managed, through a deft series of overseas subsidiaries and tax havens, to shave $3.1 billion off its tax bill over the past three years.

The Bloomberg news service studied regulatory filings in six different countries to come up with the Google tax aversion strategy. Let’s all look and learn.

1. The first step in the grand plan was to create an Irish subsidiary called Google Ireland Holdings. Google licenses intellectual property rights (search engine results and advertising programs being the main bread earners) to this Irish company for a small fee. A VERY small fee, which avoids having foreign profits flow back into the United States and be taxed at a 35% corporate rate.

2. Management for Google Ireland Holdings is located in Bermuda, a well known and utilized tax haven, which makes it exempt from Irish taxes.

3. Another Irish subsidiary, Google Ireland Ltd., is credited with 88% of Google’s overseas revenue, yet this company pays taxes of less than 1% because it pays several billion dollars annually back to Google Ireland Holdings in royalty payments. The royalty payments have to be just large enough to soak up most of the tax exposure in Ireland.

4. “Ah ha,” you say. Google is illegally avoiding Irish taxes. That would be true if the payments remained within the boundaries of Ireland, but they don’t. Google Ireland Ltd. doesn’t pay Google Ireland Holdings directly, rather sends payment to another subsidiary, Google Netherlands Holdings BV, a company with no employees, and which exists only to accept these payments.

5. Now if the money stayed in the Netherlands, it would be taxed under Dutch rules but, alas, Google Netherlands Holdings BV sends almost all its money to Google Ireland Holdings.

Lest the reader think something nefarious is afoot here, fret not. This money shuffle between high tax nations to work off expenses while diverting profits to a tax haven is perfectly legal. Microsoft and Facebook use similar tactics. All we have to say is jolly good for you Google. We’re always in favor of busting the tax man’s chops no matter what language he speaks. Carry on.

The Holistic Survival Team


Flickr / DieselDemon


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