Over the last three years, reports from Bloomberg show that the leading search engine, Google, has reduced their tax liabilities by over three billion.
Even though the corporate tax rate is as high as 35%, Google is LEGALLY only paying a 2.4% tax rate.
Google is not the first or the only company to use these income shifting strategies to reduce their income taxes. Facebook and Microsoft Corporation both take advantage of the Irish tax laws which allow them to legally move profits around and escape Ireland’s 12.5% income tax, as well as avoid their own domestic taxes. After the musical chairs of profits is complete, the profits end up in islands like Bermuda which do not levy corporate income taxes.
Companies with intellectual property commonly use the “Double Irish,” and “Dutch Sandwich” method for limiting taxes. Because the corporate tax rate in the U.S. is so much higher than much of the world (some argue this needs to change), it motivates companies to look to lower-tax countries. These strategies minimize tax liabilities, boosting profits. The way it works on a basic level is revenue from Africa, Europe or the Middle East is sent to Ireland and then quickly out to its subsidiary in the Netherlands without paying the Irish Corporate tax of 12.5% (perfectly legal). Then from the Netherlands, it goes to another subsidiary in Bermuda, which is an Irish company, and the profits avoid taxation by the Dutch.
Many analysts state that Google stock price would be severely impacted if it wasn’t for these smart tax planning strategies. Maybe if the corporate tax was not so high in the U.S., corporations would not have to go to such length to avoid taxes? Obama and other politicians have pledged to stop these type of tax strategies by taxing offshore subsidiary profits but no legislation has made its way through Congress.