Google to re­view tax pay­ment sys­tem

The Punch - - INTERNATIO­NAL BUSINESS -

IN­TER­NA­TIONAL tax au­thor­i­ties were wel­com­ing in the New Year af­ter Google’s par­ent com­pany, Al­pha­bet, an­nounced it will no longer use a no­to­ri­ous tax loop­hole known as the “Dou­ble Ir­ish, Dutch sand­wich”.

Ac­cord­ing to The Guardian, the tech­nique al­lowed the tech gi­ant to de­lay pay­ing United States taxes on in­ter­na­tional earn­ings for years, and pay a lower tax rate over­seas. It is thought to have al­lowed Amer­i­can com­pa­nies to cut their tax bills by hun­dreds of bil­lions of dol­lars, but is fi­nally be­ing closed by au­thor­i­ties.

A Google spokesman con­firmed the com­pany would scrap the in­tel­lec­tual prop­erty li­cens­ing struc­ture, by which in­ter­na­tional prof­its are chan­nelled through Ire­land and on to Caribbean tax havens, putting them out­side the reach of US tax au­thor­i­ties.

This will sim­plify Google’s tax ar­range­ments in line with ef­forts by the Or­gan­i­sa­tion for eco­nomic Co-op­er­a­tion and De­vel­op­ment to limit in­ter­na­tional tax avoid­ance, fol­low­ing changes to US and Ir­ish tax law.

It is es­ti­mated that by the end of 2017, some of Amer­ica’s most prof­itable com­pa­nies, in­clud­ing Ap­ple, the largest by mar­ket cap­i­tal­i­sa­tion, had se­questered more than $1tn off­shore, us­ing the “dou­ble Ir­ish” to park bil­lions in “ghost com­pa­nies”. Com­pa­nies in­clud­ing Google, Cisco, Pfizer, Merck, Coca-cola and Face­book all avoided a 35 per cent US cor­po­rate tax rate, which has now been cut by Don­ald Trump.

Like other multi­na­tion­als that make use of tax min­i­miza­tion schemes, Google has al­ways said it pays all its taxes.

Ap­pear­ing be­fore a US Se­nate sub­com­mit­tee in 2013, Ap­ple chief ex­ec­u­tive Tim Cook claimed the com­pany paid “all the taxes we owe, ev­ery sin­gle dol­lar”.

“We don’t de­pend on tax gim­micks,” he added. “We don’t stash money on some Caribbean is­land.”

But a year later, un­der pres­sure from the european Union, Ir­ish of­fi­cials be­gan to crack down on the loop hole. In 2017, US au­thor­i­ties gave com­pa­nies un­til the end of 2020 to end the sys­tem.

Google now ap­pears to have acted. In a state­ment, it said it was re­act­ing to changes in US tax law de­signed to limit the abil­ity of com­pa­nies to cut their US tax bills.

For more than a decade, Dutch, Ir­ish and US tax law al­lowed Google to en­joy an ef­fec­tive tax rate in the sin­gle dig­its on non-us prof­its, es­ti­mated at around a quar­ter the av­er­age tax rate in over­seas mar­kets.

Fil­ings seen by Reuters showed that in 2018 Google moved €21.8bn ($24.5bn) through its Dutch hold­ing com­pany to Bermuda, up from €19.9bn in 2017.

“A date of ter­mi­na­tion of the com­pany’s li­cens­ing ac­tiv­i­ties has not yet been con­firmed by se­nior lead­er­ship, how­ever man­age­ment ex­pects that this ter­mi­na­tion will take place as of 31 De­cem­ber 2019 or dur­ing 2020,” the fil­ing with the Dutch Cham­ber of Com­merce said.

“Con­se­quently, the com­pany’s turnover and associated ex­pense base gen­er­ated from li­cens­ing ac­tiv­i­ties will dis­con­tinue as of this date.”

Un­der the Dou­ble Ir­ish, com­pa­nies shift tax­able in­come from an op­er­at­ing com­pany in Ire­land to an­other Ir­ish-reg­is­tered firm in an off­shore tax haven. Dutch tax law al­lows un­taxed prof­its to be moved to a tax haven with­out in­cur­ring a with­hold­ing tax, so a Nether­lands-based com­pany is used in the mid­dle of this “sand­wich”.

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