Google under fire for Bermuda tax shelter
Google Inc. avoided about $2 billion US in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show.
By legally funnelling profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google cut its overall tax rate almost in half. The amount moved to Bermuda is equivalent to about 80 per cent of Google’s total pre-tax profit in 2011.
The increase in Google’s revenues routed to Bermuda, disclosed in a Nov. 21 filing by a subsidiary in the Netherlands, could fuel the outrage spreading across Europe and in the U.S. over corporate tax dodging. Governments in France, the U.K., Italy and Australia are probing Google’s tax avoidance as they seek to boost revenue during economic doldrums.
Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the EU $1.3 trillion a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a news conference in Brussels.
“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe,” said Richard Murphy, an accountant and director of Tax Re
search LLP in Norfolk, England. “The political awareness now being created in the U.K., and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut.”
Google said it complies with all tax rules, and its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, Calif.-based company said in a statement.
The Internet search giant has avoided billions of dollars in income taxes around the world using a pair of tax shelter strategies known as the Double Irish and Dutch Sandwich, Bloomberg reported in 2010. The tactics, permitted under tax law in the U.S. and elsewhere, move royalty payments from subsidiaries in Ireland and the Netherlands to a Bermuda unit headquartered in a local law firm.
Last year, Google reported a tax rate of just 3.2 per cent on the profit it said was earned overseas, even as most of its foreign sales were in European countries with corporate income tax rates ranging from 26 per cent to 34 per cent.
At a hearing last month in the U.K., members of Parliament pressed executives from Google, Seattle-based Amazon.com Inc. and Starbucks Corp. to explain why they don’t pay more taxes there.