Google's $2 billion tax dodge

The company reportedly uses a Bermuda loophole to cut its tax payments significantly. It's another sign that the tax code, which is way too complex, needs reform.

By Jonathan Berr Dec 10, 2012 12:04PM
The Google logo is seen on a podium and projected on a screen at Google headquarters in Mountain View, Califorina Paul Sakuma/AP Google (GOOG) slashed its corporate tax bill by $2 billion in 2011 thanks to some creative and legal accounting, according to Bloomberg News. This should anger taxpayers as Congress debates how to avoid the fiscal cliff.

The search engine giant shifted $9.8 billion in revenue to a Bermuda shell company, almost double the total from three years earlier, the news service says.

This is hardly a shock. Tax authorities in the U.S. and Europe have complained for years about the tricks wealthy individuals and corporations are using to avoid paying their fair share to governments. Officials in Europe and the U.S. are cracking down on practice of companies shifting profits from one country to another, also known as transfer pricing.

According to the Tax Justice Network, $32 trillion in U.S. wealth is parked in offshore accounts. The New York Post recently noted that Apple (AAPL), Microsoft (MSFT) and eBay (EBAY) have tens of billions of dollars squirreled overseas. Google has employed tax avoidance strategies with names that sound like pulp detective novels, such as "Dutch Sandwich" and "Double Irish." They seem to have worked like a charm.

"Last year, Google reported a tax rate of just 3.2% on the profit it said was earned overseas, even as most of its foreign sales were in European countries with corporate income tax rates ranging from 26% to 34%," according to Bloomberg. "Google’s overall effective tax rate dropped to 21% last year from about 28% in 2008. That compares with the average combined U.S. and state statutory rate of about 39%."


One thing that Democrats and Republicans agree upon is that the U.S. tax code is needlessly complicated. It needs to be reformed but Congress needs to tackle the jobless situation first because fixing the tax code is a tall order.


During the presidential campaign, both Barack Obama and Mitt Romney spoke of the need to close tax loopholes. Unfortunately, as the Google case highlights, that's easier said than done. No one has any incentive to address this problem because so much money is at stake.


Jonathan Berr does not own shares of the listed shares. Follow him on Twitter @jdberr.


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83Comments
Dec 10, 2012 3:13PM
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I guess Google has more on the ball than Congress who writes the tax laws.
Dec 10, 2012 3:54PM
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The government has been binging for years on every spending program imaginable, and now they refuse to cut spending while recruiting a large portion of the American public to get them more revenue to keep squandering. Google could easily move their entire operations overseas since the internet is a global entity. Just think about it, they don't make a single product. Put enough of a burden on them and other companies, and if they can, they will move to maintain larger profits. We don't have a revenue problem due to loopholes or rates that are too low. We have the problem because we as a nation elected people to office who ran deficits, allowed unfair trade, ignored regulatory agency warnings designed to protect investors, and made and continue to make decisions based on their own political gain without regard for the people's best interest. I'll bet they'll raise the debt ceiling again and keep spending us into oblivion while the public buys into the rich are evil crap. 
Dec 10, 2012 3:49PM
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Let's see:  John Boehner and the house wants to close these loop holes that ultra-liberal companies like Google abuse yet Boehner is the bad guy?!?!?!

Liberals.  God love em!  LOL
Dec 10, 2012 3:25PM
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They pay huge sums of money to loobyist to make sure that they get the best deals for taxes....and they get what they pay for!
Dec 10, 2012 3:13PM
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Problem, like I stated before.  The business sector is way smarter than anyone in the government.  They make laws they don't understand.  Let's just pass Obamacare and then we will read it to find out what is in the bill.

 

Give me a break you have idiots running the government, and they are just not that bright.   Problem they usually screw things up worse.

 

Now Dumbo wants to raise the debt ceiling on his own.  Good luck with that.

Dec 10, 2012 2:20PM
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whats wrong with , getting around paying taxes too the government.. nothing... The government just missuses the money..overspending needs too stop..
Dec 10, 2012 3:21PM
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What ever happened to unbiased reporting.  Not throught the first paragraph and the author is telling us how we should feel about something.  How about giving us the facts and letting us decide how we want to feel.  Shame
Dec 10, 2012 4:02PM
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Google did nothing illegal. It is congress that has caused this type of behavior. For fairness to all, there should be a flat tax of 12% for every single person in the U.S. No write offs, no deductions,

no loop holes. If Obama wants people to pay thier fair share (which he really doesn't) this would be the most fair for all. And neither does congress. We  the people arte at fault for keeping them there.

And lets not for get Obama's big promise of government transparency. HA HA HA HA HA HA

He totally suckered the American public on that one, and he is still lying and ducking questions on  the Benghazi issue. He still is avoiding the parents of those who died.

Gutless!

Dec 10, 2012 4:09PM
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Another example of how our government and the tax code is driving jobs and wealth out of this country.

Dec 10, 2012 3:56PM
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This "raising taxes on the rich" is going to be a farce.  They will just re-write the tax code for them and recycle the same old tax loopholes right back into the code.  They will just be worded differently.  Much like calling something "6" instead of "half-a-dozen".  Yawn. 
Dec 10, 2012 3:37PM
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What fool thinks that businesses operate in a static (unchanging) environment ? Business will always adapt, change, evolve, or move to be profitable despite whatever the Obama administration does. Whatever the tax rules are, businesses follow them. It's not illegal what Goggle did, just smart use of the tax code !! Why do you think we're taking our dividend payments now instead of 2013 ? And you think that congress can revamp the tax code to be fair ? Not if it hurts those who are rich in congress. But go ahead and try. We in the business world will follow the rules, whatever they may be but we'll always adapt to profitable.
Dec 10, 2012 4:51PM
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So, let me get this straight, Google is not doing anything illegal but this should "anger taxpayers" as the liberal dimwit writes in this piece?  Conversely, 12 million people have snuck into the United States illegally, are still living here illegally, aren't paying any taxes, and are an incredible drain on government resources, but all this shouldn't "anger taxpayers" ?  Perfect glimpse into how blinded the libs have become after drinking too much of the "hope and change" elixir that was sold out of the back of the snake oil wagon.............oh, the "new and improved formula", Forward, is now available for your drinking pleasure (if only Jim Jones were here to dole out the kool aid to these illiterate mental midgets)......
Dec 10, 2012 5:09PM
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Answer to problem. Fire congress and hire Google. DUH!
Dec 10, 2012 4:41PM
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Where's the outrage from our totally non-biased media ??
Dec 10, 2012 12:53PM
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I like simple solutions.

 

Charge Officers of the corporation for currency manipulations. Let chip fall where they may be.

 

Only law if it is not there to be passed is about profit is tranferred from US to foreign terriroty it is considered Currency manipulation and liable for triple damages and officers in charge can get 10-25 years imprisonment and fine upto the amount determined by courts.

 

 

Dec 10, 2012 4:39PM
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Yes you are absolutely right"gaswhoo"

Those dumbheads made tax law so complex ,that they themselves cannot see a whole  bunch of loopholes,while others like Tech Behemots mentioned in that articles ,hiring best retired IRS employees ( I know one of those and he confessed) and those together with Hi Paid Corporate lawyers find ways to stash money and pay miserable Tax rate.

What Honest Government needs to do now is  to double the fine on $2.4 B and start Auditing  all those cheaters ,who keeps money offshore

When poor J Dow owns IRS $1000.00 they will knock him down with threatening calls and letters,but when MSoft/Goog/ Ebay -they scare to touch them

Dec 10, 2012 3:32PM
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Perhaps it is perfectly legal, but is it good corporate citizenship?
Dec 10, 2012 4:56PM
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When President Obama needed a business executive to come to his campaign defense, was there. The co-founder, director and former CEO of Costco even made a prime-time speech at the Democratic Party convention in Charlotte. So what a surprise this week to see that Mr. Sinegal and the rest of the Costco board voted to give themselves a special dividend to avoid Mr. Obama's looming tax increase. Is this what the President means by "tax fairness"?

Specifically, the giant retailer announced Wednesday that the company will pay a special dividend of $7 a share this month. That's a $3 billion Christmas gift for shareholders that will let them be taxed at the current dividend rate of 15%, rather than next year's rate of up to 43.4%.

Hmmmm......wonder why we haven't seen this story on MSN (AKA part of the Obama cheer leading team).
Dec 10, 2012 5:21PM
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"Dutch Sandwich" and  "Double Irish".  Sounds like the sex positions in which America gets ****ed.  Thank you, Congress, for making it happen.  Since you got paid for it, I guess that makes you the pimps.
Dec 10, 2012 5:02PM
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You can tell a lefty liberal wrote this article.  Anybody who says pay "their fair share" is card carrying Obamite.  What is their fair share and who should be able to determine it???  Google is following the letter of the law as they are allowed to do. 

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