Google's international tax shenanigans
The company shifts money around the world to get the lowest tax rates possible. It's legal, but is it right?
Those lawyers have made Google and its shareholders oodles of money by devising ways to funnel profits out of high-tax countries and into island tax havens like Bermuda.
It's all perfectly legal -- though it does make some people skeptical of Google's "Don't be evil" mantra. And as a result, Google has cut taxes by $3.1 billion in three years and lowered its overseas tax rate to a jaw-dropping 2.4%, Bloomberg reports.
The numbers should make a shareholder proud. The U.S. tax rate for corporations is 35%. If Google actually paid that rate on all its earnings, its share price might be $100 lower, one analyst told Bloomberg.
"It's remarkable that Google's effective rate is that low," one tax economist told Bloomberg. "We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20%."
Google's tax strategy helped it boost earnings by 26% last year through international tax benefits, Bloomberg reported. While other tech companies use similar strategies, Google is more aggressive and has been able to pay lower international taxes than Apple(AAPL), IBM (IBM) and Microsoft (MSFT). (Microsoft owns and publishes MSN Money.)
So how does Google do it? By creating a subsidiary in a low-tax country and selling that unit the foreign rights to Google technology developed in the U.S. As a result, all foreign profits from that technology go to the low-taxed subsidiary.
Google decided to create a subsidiary in Ireland, Bloomberg reported. Google Ireland Holdings now has the foreign rights for Google's search and advertising for Europe, the Middle East and Africa.
As a result, the Ireland office took credit for 88% of Google's international sales last year.
Why Ireland? Because in its desperation to attract big names, Ireland loosened rules to let companies move profits out of the country with little tax penalty. And the penalty gets even smaller if Google moves the money to the Netherlands.
So the payments go from Ireland to the Netherlands to Bermuda, Bloomberg reports. That's what the lawyers like to call a "Dutch sandwich." Yum. Post continues after video:
This is not illegal. But is it ethical? As the U.S. struggles to pull out of a recession, is it fair for Google to island-hop its way out of paying more taxes? Google's overall effective tax rate was 22.2% last year.
One economics professor told Bloomberg that corporate profit shifting costs the U.S. government up to $60 billion a year in lost taxes.
Bloomberg found two opposing viewpoints. One manager at PricewaterhouseCoopers says Google is obligated to shareholders to minimize taxes, which it is doing.
But a college accounting professor who reviewed Google's tax disclosures said the company is "perpetrating evil under our noses."
"Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?" the professor said. "It was paid for by the United States citizenry."
“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
-Judge Learned Hand
It's legal, but is it right?
Hell yes; look what the government does.
People should not be outraged by this. Google has no obligation to pay more in taxes than they are legally required. There is a huge difference between tax avoidance and tax evasion. Only you taxpayers who wrote checks for more than you owed last April 15th have any right to preach. I'm all for paying the correct amount of taxes, but expanding the economy requires dollars too, but not in the form of higher taxes!
Progressive liberal Google doesn't like to pay more taxes! I'm not surprised as all progressives/liberals want the earnings of others confiscated for the "greater good" but don't want to put their own into the pot.
Replace our confusing Tax Code, which is really just a tool to punish political enemies as well as reward political friends (not to mention it encourages class warfare), with a simple Flat Tax of 20% across the board. No more tons of paperwork, no more IRS, and no more attempts at behavior modification by the govt using "Tax Incentives". Then everyone will have some "skin in the game".
I'll bet everyone then will be more interested in govt spending less!
ME9999 so true, people who are okay with companies being unethical should never complain about the deficit.
We as Americans have the burden to follow the law. And if by any reason that we can find away to save taxes it is our right. The tax laws are so complex and
so large I think no know really if they are breaker the law. The IRS don't know if it is legal or not. They can't find 3 billion they lost. Good for Google!!!
To the idiots "hating" on Google....
Do you work to pay your bills or do you work to pay your neighbors bills???
Well neither does Google, morons!!!
They are in business and work to make money for themselves and their shareholders. Not to take care of a bunch of welfare suckoffs!
There should not even be an income tax! Way to go Woodrow Wilson (the worst president in US history) Taxing prosperity is what "F'd" up our country in the first place. Then ruining our money by riding us of the gold system.
The income tax was ruled unconstitutional in the late 1800's so Wilson rammed it through by ammending the constitution. What a jackass!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.