Google Inc. has dodged $3.1 billion in taxes in the last three years, reports Jesse Drucker of Bloomberg, giving new meaning to CEO Eric Schmidt's recent comment to analysts: "We love cash."
The question now is how much longer Google can continue to draw on its positive image as the "Don't-Be-Evil" company. Most folks don't think kindly of corporate giants who milk exotic overseas tax loopholes to fatten their profits.
The fact is it doesn't matter how much Google claims to be a different kind of company. Google is simply another corporate tax dodger.
The Internet giant's tax bonanza is courtesy of a complex chain of companies in Ireland, the Netherlands and Bermuda that Bloomberg depicts in a detailed interactive chart.
There's apparently nothing illegal about Google's tactics. In fact, the dodges are used frequently enough by companies that they have nicknames. According to the Bloomberg article:
Google’s income shifting — involving strategies known to lawyers as the ‘Double Irish’ and the ‘Dutch Sandwich’ — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.
“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent."
The U.S. corporate income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.
The Google tax dodge is based on exploiting its valuable intellectual property rights, a popular game in the technology industry pioneered by other giants such as Microsoft Corp., which also uses Ireland to shelter its overseas income.
In essence, companies put their patent rights in a low-tax country like Ireland, then send their offshore profits to Ireland rather than back to the United States. Taxes are further reduced by routing the money through tax havens like Bermuda. The money is then parked offshore indefinitely so that no U.S. tax on the income will come due. Such practices have deprived the U.S. and European governments of billions in revenue amid severe budget crises.
Bloomberg notes the irony of Google's strategy given its socially-conscious image and its origins as a beneficiary of taxpayer-funded largess.
Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” Baruch College professor Abraham J. Briloff, told the news service.
“Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry." The National Science Foundation funded research at Stanford University that helped lead to Google’s creation.
Not long ago Schmidt claimed, "We see ourselves as company with a mission about information and not a mission about revenue or profits." Maybe he needs to have a chat with Patrick Pichette, Google's Chief Financial Officer and the rest of the bean-counting team and get them on the same page.
Schmidt used to say, "We believe it's important to put our money where our principles are." Sadly the truth now is that Google simply puts principles — what few it has left — where the money is. And Google executives have no qualms about tax dodging to get there.
