So much for Google’s mantra of “Don’t be evil.”
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.
Wait, that’s just $3.1B. What about the other $56.9B?
Well, the rest isn’t Google’s. The other money comes from corporations who have followed a similar path. And that includes Facebook and Microsoft.
Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor 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 percent income tax. (See an interactive graphic on Google’s tax strategy here.)
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 U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros.
But wait. There is definitely much, much more…
The tactics of Google and Facebook depend on “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens while attributing expenses to higher-tax countries. Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.
Is this fair?
Well, let me put it to you this way…
Is it fair that you pay your current tax rate, which includes local, state and federal income tax as well as FICA (Social Security) and Medicare withholdings, while Google pays an effective corporate income tax rate of 2.8%?