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Rules allow Google to pay 2.4% tax on profits abroad

Bloomberg  |  New York 

Google Inc cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five US companies by market capitalisation, according to regulatory filings in six countries.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the US Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 per cent.”

The US corporate income-tax rate is 35 per cent. In the UK, Google’s second-biggest market by revenue, it’s 28 per cent. Google, the owner of the world’s most popular search engine, uses a strategy that has gained favour among such companies as Facebook Inc and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 per cent income tax.

The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the US government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of ¤868 billion.

Countless companies
Google, the third-largest US company by market capitalisation, hasn’t been accused of breaking tax laws. “Google’s practices are very similar to those at countless other global companies operating across a wide range of industries,” said Jane Penner, a spokeswoman for the Mountain View, California-based company. Penner declined to address the particulars of its tax strategies.

First Published: Fri, October 22 2010. 00:56 IST