Google Taxes Avoidance: It is no big secret that large multi-national corporations often times avoid millions (or in this case, billions) in tax payments by moving revenues into offshore companies.
Google Inc (NASDAQ:GOOG) has been practicing this strategy for many years. According to Bloomberg, in 2011 the company shifted nearly $10 billion in revenue into a “Bermuda shell company.” This is almost twice as much as the total from three years prior, proving that the tech giant knows just as much about taxes as they do search engines.
Isn’t this illegal?
On the surface, it is easy to look at this situation and believe that it has to be illegal. However, nothing could be further form the truth.
Google, among many others, legally move profits into Bermuda for one main reason: the country does not have a corporate income tax. By making this decision, the company is able to cut its tax rate in half. For an even bigger eye opener, consider this: the amount of revenues moved to Bermuda is equivalent to roughly 80 percent of the company’s 2011 pretax profits.
With an effective tax rate of 21 percent in 2011, Google Inc (NASDAQ:GOOG) paid $1.5 billion in worldwide taxes. While this sounds like a lot, it is less than half of what the company would have paid if all revenue had stayed in the United States.
For Google and other companies taking advantage of this loophole, the savings are huge. That being said, when companies are saving this much money there is sure to be a lot of upset people.
Governments in Australia, Italy, France, and the United Kingdom are currently reviewing Google Inc (NASDAQ:GOOG)’s tax avoidance strategy. Recently, the European Commission advised member states to strongly consider implementing anti-abuse rules related to tax havens. The European Union’s executive body reported losses of $1.3 trillion last year due to tax avoidance and evasion.
In the same Bloomberg article, Richard Murphy, an accountant and director of Tax Research LLP in Norfolk, England sheds some light on this tax strategy:
“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe. The political awareness now being created in the U.K., and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut.”
On one side of the equation you have Google, a company that is able to save billions of dollars by shifting revenues to Bermuda. On the other side of the equation you have countries all over the world that are beginning to fight against this.
What do you think? Is it fair that Google Inc (NASDAQ:GOOG) and other tech giants can save so much in taxes through these types of strategies? Feel free to leave a comment below, sharing your opinion on this matter.
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