Google’s ‘Dutch Sandwich’ shielded $19 billion from tax

ELABORATE SETUP

The Irish government closed the tax loophole that permitted “Double Irish” tax arrangements in 2015. But companies already using the structure are allowed to continue employing it until the end of 2020.

According to U.S. financial filings, Google’s global effective tax rate in 2016 was 19.3 per cent, which it achieved in part by shifting the majority of its international profit to the Bermuda-based entity.

The total pool of foreign earnings Google was holding overseas, free from taxation, was US$60.7 billion at the end of 2016, the company said in its SEC filings.

The U.S. tax law passed last month would give companies such as Google an incentive to repatriate much of that cash by offering them a one-time, 15.5 per cent tax rate. After that, foreign earnings would be taxed at 10.5 per cent, although companies can deduct foreign tax liabilities from this amount.

The law will also impose a 13.1 per cent tax on certain international patent royalties that could hit Google’s tax arrangement in which its Bermuda-based subsidiary licenses its intellectual property to its other foreign subsidiaries.

Google Ireland Ltd. collects most of the company’s international advertising revenue and then passes this money on to Dutch subsidiary Google Netherlands Holdings BV. A Google subsidiary in Singapore that collects most of the company’s revenue in the Asia-Pacific region does the same.

The Dutch company then transfers this money on to Google Ireland Holdings Unlimited, which has the right to license the search giant’s intellectual property outside the U.S. That company is based in Bermuda, which has no corporate income tax. The sculpture of Google’s Android mascot sits inside the company’s headquarters in California. Google’s parent company, Alphabet, moved seven per cent more through a “double Irish” and “Dutch sandwich” tax structure in 2016.