Google Inc. avoided about $2 billion 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.
Yes, yes it did.
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 strategy of Google and other multinationals is a deep embarrassment to governments around Europe,” said Richard Murphy, an accountant and director of Tax Research 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.”
But it didn’t avoid or evade any European taxes by doing so. What it did was play the US corporate income tax system.
There has been no loss to EU budgets through this use of Bermuda at all.
The US system says that if you don’t bring profits onshore then you don’t pay US corporate income tax on them. You do of course have to pay all of the correct taxes elsewhere: but not the US ones. That is, of course, an issue for US law, not EU.
But there’s more to it than this as well. A US company cannot use those offshore stored profits to pay dividends: to do that you’ve got to take them onshore and thus pay the corp income tax. You also cannot fund share buybacks from them. It’s even very difficult to lend that money back into the US corporation.
So, what can you do with it? Invest it. That’s all you actually can do with it.
So, what’s the end result of this $2 billion not being paid to Uncle Sam? Google has had to invest $2 billion more in something or other.
And the problem with Google investing $2 billion in something is what?