Google on a Samsung smartphone

Google Reported Shifting $23 Billion to Bermuda in 2017 Using a Dutch Shell Company in Order to Gain Tax Leniency

Google, a renowned international technology company, was found to be using a Dutch shell company in order to reduce its foreign tax bill in 2017 by shifting $24 billion, 19.9 billion euros, of its revenue from royalties to Bermuda. The amount shifted in 2017 through the Netherlands was 4 billion euros more than what was documented in 2016. This information is according to documents filed at the Dutch Chamber of Commerce.

To further explain how this worked, Google used the subsidiary in the Netherlands, Google Netherlands Holdings BV, to shift their revenue made outside of the United States, their home country, to an affiliated base in Bermuda, which is essentially a known tax haven where companies are not required to pay an income tax. This base is called Google Ireland Holdings, and the tax strategy used here is known as the “Double Irish, Dutch Sandwich”. Surprisingly, this is a legal strategy which has allowed Google, who is owned by Alphabet, to avoid US income taxes and European withholding taxes, saving a large portion of their overseas profits.

When addressed through calls and emails about this shifting situation, Google stated that “We pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” and continued in detail to say “Google, like other multinational companies, pays the vast majority of its corporate income tax in its home country, and we have paid a global effective tax rate of 26% over the last 10 years.”

This appealing taxation rate has benefited Alphabet for more than a decade. Their tax rate is in the single digits when it comes to profits not made in the U.S., which is approximately a quarter of most involved in the overseas market.

The reason Ireland is so lenient on corporate taxation is due to the idea that it will feed innovation and progression. In the United States, the general corporate tax rate is 35%, but Ireland’s taxation rate for corporations is just 12.5%. More importantly, Ireland charges a tax rate of only 6.25% for profits involving a company’s patent or intellectual property. While it does encourage more free thinking, it also has the possibility of attracting greed. That being said, many will use this tax leniency to their advantage when given the opportunity.

Aware of this issue, the U.S. and the European Union have put pressure on Ireland to make adjustments to this discrepancy. Back in 2014 Ireland made the decision to phase out this arrangement, and in 2020 the tax advantages for Google will supposedly come to a close. How Alphabet-owned Google will proceed in the coming years when it comes to taxation is still a mystery, but beginning in 2020, their past profit diversion strategy will no longer be legally accepted. Additionally, Google Netherlands Holdings BV in 2017 made a gross profit of 13.6 million euros and paid 3.4 million euros in taxes.

To learn more about financial fraud, tax evasion, and more contact Newman & Shapiro today!