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Friday, October 22, 2010

Google Bags Billions -

GOOGLE CUT its taxes by $3.1 billion (€2.2 billion) in the last three years by using a strategy known as the “Double Irish”, under which it shuttled foreign profits through its Irish operation to Bermuda.

Google’s “income shifting” helped reduce its overseas tax rate to 2.4 per cent, the lowest of the top five US technology companies, according to regulatory filings in six countries.

Google’s tax reduction method takes advantage of Irish tax law to legally move profits in and out of subsidiaries here, eventually lodging them in island havens that levy no corporate income taxes.

Companies that use the “Double Irish” arrangement – so named because it relies on two Irish companies – avoid taxes at home and abroad.

Facebook is preparing a similar structure that will send earnings from Ireland to the Cayman Islands, according to its filings in the Caymans and Ireland.

The strategy yesterday attracted criticism in the US, which is struggling to close a projected $1.4 trillion budget gap. The US has a corporate tax rate of 35 per cent.

The tactics of Google, which employs almost 2,000 people in Dublin, and Facebook depend on “transfer pricing” – paper transactions among a company’s subsidiaries that allow for the allocation of income to tax havens while attributing expenses to higher-tax countries.

International income shifting helped cut Google’s overall effective tax rate to 22.2 per cent last year. The company also shifted income through the Netherlands, in a technique known as the “Dutch Sandwich” because it sees the country acting as a stopover between two other jurisdictions.

“It’s remarkable that Google’s effective rate is that low,” said Martin Sullivan, a tax economist who formerly worked for the US treasury department.

A spokesman for the Department of Finance declined to comment specifically on Google’s strategies.

“Ireland always seeks to ensure that the profits charged in Ireland fully reflect the functions, assets and risks located here by multinational groups,” he said.

A Google spokeswoman said that the firm’s practices were “very similar to those at countless other global companies” operating across a wide range of industries.

Google’s Irish business provides technical, sales and operations support to customers in more than 50 countries. Last year, the Dublin-based company posted profits of €47.5 million, up almost fivefold on the previous 12 months.

Google paid taxes of € 18.3 million in Ireland last year, up from €8.1 million in 2008.

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