Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes

[highland145]

What the heck is the deal with this? I'm pro business but this is wrong. We've got the Dutch sandwich with the poor/entitlements as one slice, the corps doing this crap as the other and the middle class as the fresh meat taking it in the a**.

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.
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.
Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax. (See an interactive graphic on Google’s tax strategy here.)

http://www.bloomberg.com/news/2010-...illion-u-s-revenue-lost-to-tax-loopholes.html

 

[PJABBER]

Great article on how its done.

 

[zephyrprime]

In this particular instance, Google is using foreign tax laws to shuffle money around to Bermuda who has a 0% tax rate. This is a good example of how even though the US corporate tax rate is 35%, no company actually pays taxes at anywhere near that level. The real level is actually ~13.4% (http://www.cbpp.org/cms/?fa=view&id=784)

Business tax law needs to be changed in a fundamental way to prevent tax dodges like this. Businesses should be taxed based on where they operate not where they are technically domiciled in order to prevent shopping around for the the best tax rates by becoming a fake offshore company based in Bermuda. If a company doesn't like the tax rate in a particular nation, they are free to not operate there.

 

[BeauJangles]

In this particular instance, Google is using foreign tax laws to shuffle money around to Bermuda who has a 0% tax rate. This is a good example of how even though the US corporate tax rate is 35%, no company actually pays taxes at anywhere near that level. The real level is actually ~13.4% (http://www.cbpp.org/cms/?fa=view&id=784)

Business tax law needs to be changed in a fundamental way to prevent tax dodges like this. Businesses should be taxed based on where they operate not where they are technically domiciled in order to prevent shopping around for the the best tax rates by becoming a fake offshore company based in Bermuda. If a company doesn't like the tax rate in a particular nation, they are free to not operate there.

I agree that companies that operate in the US should be taxed and that the tax could should be reformed, however I firmly believe that by lowering the tax rate from 35% to something close to the "real" 13%, say 20% or so, will result in boosted tax revenue and be a nice compromise between government fund-raising and business growth and development.

then again, I'm not an economist.

 

[Fern]

Meh, I'd take this article with a grain of salt (if not a bucket).

For one thing the IRS has analyized and approved this. For another, the US taxes US companies on (worldwide) foreign income. We give a credit on taxes paid to foreign countries (but only on foreign profits), so Google getting out of Irish taxes just means more tax money for the USA (via less credit for foreign taxes).

As regards the US, those foreign profits will be taxed, they only get a deferral (paid later when profits repatriated).

The article tries mightily to give the impression those foreign profits escape taxation, that's incorrect.

Fern

 

[highland145]

Meh, I'd take this article with a grain of salt (if not a bucket).

For one thing the IRS has analyized and approved this. For another, the US taxes US companies on (worldwide) foreign income. We give a credit on taxes paid to foreign countries (but only on foreign profits), so Google getting out of Irish taxes just means more tax money for the USA (via less credit for foreign taxes).

As regards the US, those foreign profits will be taxed, they only get a deferral (paid later when profits repatriated).

The article tries mightily to give the impression those foreign profits escape taxation, that's incorrect.

Fern

Incentive to build/operate in other countries and not bring the $$ back in, imo.

 

[Fern]

In this particular instance, Google is using foreign tax laws to shuffle money around to Bermuda who has a 0% tax rate. This is a good example of how even though the US corporate tax rate is 35%, no company actually pays taxes at anywhere near that level. The real level is actually ~13.4% (http://www.cbpp.org/cms/?fa=view&id=784)
-snip-

No, not really.

What you're seeing is the difference between calculating profit under 2 different set of rules. One is called "GAAP" (Generally Accepted Accounting Principles), the other method is defined under tax law. The only difference is 'timing'.

By 'timing' I mean that over the lifetime of a company the 2 result in the same amount of profit, it is when you break that period up into 12 month periods where the differences occur. I.e., it's what you shove into or out of this year into the next that results in the difference.

IMO, the GAAP method overstates profit and makes our companies look more profitable than they are.

So, if you look at profits computed under GAAP, which are high, then compare the tax paid (under tax law), of course the rate looks low.

Fern

 

[PeshakJang]

Incentive to build/operate in other countries and not bring the $$ back in, imo.

Coupled with a 35% Repatriation tax, there is no incentive (and quite a bit of disincentive) to keep that money abroad, and use it in foreign investments.

Now That's Progressive! ©

 

[Fern]

Incentive to build/operate in other countries and not bring the $$ back in, imo.

We want our companies to be competitive abroad. This happens by allowing them to plow their profits back into the foreign business (which is itself a 'normal' tax deduction even for wholly domestic companies). We're just putting them on equal footing with companies from other countries.

Having a tax system that screws your own companies is flat-out stupid. If we did that everyone would just incorporate abroad, there's no law that says US citizens can't own foreign stock/companies.

And they WILL bring the profits back, otherwise their's no point to operate abroad in the first place.

Fern

 

[highland145]

No, not really.

What you're seeing is the difference between calculating profit under 2 different set of rules. One is called "GAAP" (Generally Accepted Accounting Principles), the other method is defined under tax law. The only difference is 'timing'.

By 'timing' I mean that over the lifetime of a company the 2 result in the same amount of profit, it is when you break that period up into 12 month periods where the differences occur. I.e., it's what you shove into or out of this year into the next that results in the difference.

IMO, the GAAP method overstates profit and makes our companies look more profitable than they are.

So, if you look at profits computed under GAAP, which are high, then compare the tax paid (under tax law), of course the rate looks low.

Fern

Thanks.
My industry does something similar. Some claim the income when a loan is made and pay the tax upfront. Others, like me, claim the income as the payments are made, which makes more sense, imo.

 

[ohnoes]

No, not really.

What you're seeing is the difference between calculating profit under 2 different set of rules. One is called "GAAP" (Generally Accepted Accounting Principles), the other method is defined under tax law. The only difference is 'timing'.

By 'timing' I mean that over the lifetime of a company the 2 result in the same amount of profit, it is when you break that period up into 12 month periods where the differences occur. I.e., it's what you shove into or out of this year into the next that results in the difference.

IMO, the GAAP method overstates profit and makes our companies look more profitable than they are.

So, if you look at profits computed under GAAP, which are high, then compare the tax paid (under tax law), of course the rate looks low.

Fern

GAAP allows LIFO, which generally understates profit. E.g. Exxon's $4bn net LIFO benefit.

 

[JS80]

Incentive to build/operate in other countries and not bring the $$ back in, imo.

Google deferred tax asset/liability. It's sitting on the balance sheet somewhere.

 

[LegendKiller]

GAAP allows LIFO, which generally understates profit. E.g. Exxon's $4bn net LIFO benefit.

Gawd, I thought I'd never come into contact with LIFO/FIFO again. I *HATE* accounting. I was so happy to be done with it after b-school, then after the CFA exams.

I had nightmares about my accounting professor ranting about LIFO liquidations...ugh!

 

[ohnoes]

lol, tell me about it. LIFO reserves, LIFO layers, impairments, it all drives me f'ing crazy. But it was fascinating to see how managers can manipulate earnings through accounting. If I believed my cost acctg prof, all earnings & COGS are useless.

 

[JS80]

ahhh cost accounting...one of two C's I got in college.

 

[DrPizza]

OHHHHHHHHHH! So that's why Ireland is (was?) the world's largest exporter of software a few years ago.

 

[charrison]

Coupled with a 35% Repatriation tax, there is no incentive (and quite a bit of disincentive) to keep that money abroad, and use it in foreign investments.

Now That's Progressive! ©

A few years ago they allowed money to be repatriated at 10%, tax revenues in that category soared.

 

[silverpig]

In this particular instance, Google is using foreign tax laws to shuffle money around to Bermuda who has a 0% tax rate. This is a good example of how even though the US corporate tax rate is 35%, no company actually pays taxes at anywhere near that level. The real level is actually ~13.4% (http://www.cbpp.org/cms/?fa=view&id=784)

Business tax law needs to be changed in a fundamental way to prevent tax dodges like this. Businesses should be taxed based on where they operate not where they are technically domiciled in order to prevent shopping around for the the best tax rates by becoming a fake offshore company based in Bermuda. If a company doesn't like the tax rate in a particular nation, they are free to not operate there.

That too has its problems though. A common technique is by using transfer prices between divisions to transfer profits to low-tax jurisdictions.

Let's say I am a technology firm that makes money on gizmos and I have patents for these gizmos which form the basis of the technology. I'll put the R&D facility in Bermuda, the operations in the US, and then sell gizmos in the US. Let's say I make $500m in revenue, have US-based costs of $450m, for $50m in profit. I'll say that I had to pay my Bermuda division $50m for the patent license, bringing my US-based profit to $0. Thus, no tax. Bermuda makes $50m, but it's tax-free, so there we go.

 

[swerus]

In this particular instance, Google is using foreign tax laws to shuffle money around to Bermuda who has a 0% tax rate. This is a good example of how even though the US corporate tax rate is 35%, no company actually pays taxes at anywhere near that level. The real level is actually ~13.4% (http://www.cbpp.org/cms/?fa=view&id=784)

Business tax law needs to be changed in a fundamental way to prevent tax dodges like this. Businesses should be taxed based on where they operate not where they are technically domiciled in order to prevent shopping around for the the best tax rates by becoming a fake offshore company based in Bermuda. If a company doesn't like the tax rate in a particular nation, they are free to not operate there.

No they don't pay any taxes in most cases. You and I do when we purchase their goods or services, because its just another overhead added to their costs. Might as well be 0% here as well.

 

[zephyrprime]

No they don't pay any taxes in most cases. You and I do when we purchase their goods or services, because its just another overhead added to their costs. Might as well be 0% here as well.

Gawd that is such a retarded line of thought. Well since they pay no taxes, might as well tax them a 100%, lower personal taxes, and call it a day, eh?

Conservatives have come to use this whole "they pay no taxes" line of reasoning to forward their agenda of lowering corporate income taxes (what useful idiots) but they seem to fail to see the logic that if corporations effectively pay now income taxes because they pass on all costs, they it's just as valid to tax them 100% as it is to tax them 0% because in both cases, the corporations effectively pay no taxes they just pass on the costs!

The truth is, if you ask any company whether or not they want to pay more taxes, they will always say no. This is proof that tax costs CANNOT be passed onto consumers with 100% efficacy. If tax costs could be passed on with 100% efficacy as conservatives claim, every business would be ok with 100% taxes because they could just pass on the costs to their customers with no problems! This is obviously BS.

Production and consumption are two sides of the same coin. The best tax system is one that touches upon the economy evenly so as not to create an undue burden on one area over the other. Therefore, business tax rates overall should be the same as personal tax rates.

 

[Gunslinger08]

Increased corporate taxes will just be passed on to the consumer. These types of things tend to be regressive (affecting the poorest the most). At least with higher personal tax rates and lower (effective) corporate tax rates, the burden can be more easily controlled and spread. Decreased (effective) corporate tax rates give businesses more money to hire more employees, who can then pay personal income taxes. Really either way the individual is going to pay for it, so you may as well go with the route that potentially creates jobs and doesn't put undo burden on the poor.

 

[swerus]

Gawd that is such a retarded line of thought. Well since they pay no taxes, might as well tax them a 100%, lower personal taxes, and call it a day, eh?

Conservatives have come to use this whole "they pay no taxes" line of reasoning to forward their agenda of lowering corporate income taxes (what useful idiots) but they seem to fail to see the logic that if corporations effectively pay now income taxes because they pass on all costs, they it's just as valid to tax them 100% as it is to tax them 0% because in both cases, the corporations effectively pay no taxes they just pass on the costs!

The truth is, if you ask any company whether or not they want to pay more taxes, they will always say no. This is proof that tax costs CANNOT be passed onto consumers with 100% efficacy. If tax costs could be passed on with 100% efficacy as conservatives claim, every business would be ok with 100% taxes because they could just pass on the costs to their customers with no problems! This is obviously BS.

Production and consumption are two sides of the same coin. The best tax system is one that touches upon the economy evenly so as not to create an undue burden on one area over the other. Therefore, business tax rates overall should be the same as personal tax rates.

Its not retarded. Its true if the company can simply add it to the cost of the goods or services they sell which most can do.

That is called math.

Only way to get everyone to pay their share is a consumption tax, and removing income tax.

 

[zephyrprime]

Its not retarded. Its true if the company can simply add it to the cost of the goods or services they sell which most can do.

That is called math.

Only way to get everyone to pay their share is a consumption tax, and removing income tax.

Why not have 100% taxes then? It's all passed on according to you so it should be no problem for business.

 

[her209]

Only way to get everyone to pay their share is a consumption tax, and removing income tax.

What is considered "consumption"?

 

[zephyrprime]

Increased corporate taxes will just be passed on to the consumer. These types of things tend to be regressive (affecting the poorest the most). At least with higher personal tax rates and lower (effective) corporate tax rates, the burden can be more easily controlled and spread. Decreased (effective) corporate tax rates give businesses more money to hire more employees, who can then pay personal income taxes. Really either way the individual is going to pay for it, so you may as well go with the route that potentially creates jobs and doesn't put undo burden on the poor.

But won't increased personal taxes just be passed on to corporations in the form of reduced consumer spending?