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Google's $2 Billion Tax Dodge Prompts Inquiries by European Governments

Strategy is legal in US

Beth Brogan, Staff writer

Front Street in Hamilton, Bermuda. The increase in Google’s revenues routed to Bermuda, disclosed in a Nov. 21 filing by a subsidiary, could fuel the outrage over corporate tax dodging. (Photo: Michael Turek via Bloomberg)

Google Inc., avoided some $2 billion in worldwide taxes in 2011 by moving $9.8 billion in revenues— about 80 percent of the company's pretax profits—to a Bermuda shell company, Bloomberg reports.

The figure is nearly double the amount the Internet giant shifted three years ago—but the strategy is legal in the US, and allowed Google to almost halve it's overall tax rate.

The revenue shift was disclosed in a Nov. 21 filing by a Netherlands subsidiary, according to Bloomberg, which reports that it "could fuel the outrage spreading across Europe and in the US about corporate tax dodging."

Google, based in Mountain View, Calif., is under investigation by France, the United Kingdom, Italy and Australia for these actions.

Jesse Drucker at Bloomberg reports:

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 trillion euros ($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 press conference in Brussels

The tax strategies allow a company to move royalty payments from subsidiaries in Ireland and the Netherlands to Bermuda.

Richard Murphy, an accountant and director of Tax Research LLP in England, told Bloomberg:

“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe. The political awareness now being created in the UK, 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.”

In 2011, Google reported a tax rate of 3.2 percent on profit earned overseas, but most of its foreign sales were in European countries with corporate income tax rates between 26 and 34 percent.

Last month, the UK Parliament asked representatives from Google, Inc. and Starbucks Corp. to justify their tax shifts. While the UK provided Google with nearly $4.1 billion in sales last year, the company paid the equivalent of $9.6 million in income taxes there.

Bloomberg reports, "Google’s overall effective tax rate dropped to 21 percent last year from about 28 percent in 2008. That compares with the average combined U.S. and state statutory rate of about 39 percent."

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