Congress might not be the only ones responsible for sending us over the Fiscal Cliff and riding the Federal debt up and up. Large American companies make a habit of hiding much of their income in tax shelters, depriving the US Federal government of much of its potential revenue. You might be surprised to learn that Google is among these companies.
According to Bloomberg, Google avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, where corporate income taxes do not exist. While this business tax strategy is legal in the United States the European Union calls these actions “scandalous” and “an attack on the fundamental principle of fairness.”
The tax shelter strategies used by Google are affectionately known as the Double Irish and Dutch Sandwich. The tactics, permitted under tax law in the U.S. and elsewhere, move royalty payments from subsidiaries in Ireland and the Netherlands to a Bermuda unit headquartered in a local law firm. The European Union charges any company doing this with tax evasion and avoidance, and claims the overall cost to the EU is 1 trillion euros, or approximately $1.3 trillion, a year.
Richard Murphy, an accountant and director of TaxResearch.org.uk, highlights the problems caused by companies like Google:
“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.”
Google is already under investigation in a number of countries including Australia, France, Italy and the UK for similar tax avoidance practices. Google defends itself, saying they comply with all tax laws, and they “also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses.”
Do you think Google is paying an unfair share of taxes or that governments are demanding too much of their corporations in the first place?