Google – Taxes and Transfer Pricing

Google’s tax affairs are back in the spotlight after filings in the Netherlands have showed that billions of dollars were moved to Bermuda in 2016 using the “double Irish Dutch sandwich”.

According to the Washington Post, Google’s cash transfers to Bermuda reached $27b in 2016.

Google uses the double Irish Dutch sandwich structure to shield the majority of it’s international profits from taxation. The setup involves shifting revenue from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda-mailbox owned by another company registered in Ireland.

US
According to US filings, Google’s global effective tax rate in 2016 was 19.3%.

New US tax law will give companies such as Google an incentive to repatriate much of that cash by offering them a “one-time”, 15.5% tax rate on offshore funds. After that, foreign earnings will be taxed at 10.5%, with companies allowed to deduct foreign tax liabilities from this amount.

The law will also impose a 13.1% tax on certain international royalties. That could affect Google’s tax arrangement in which its Bermuda-based subsidiary licenses Google’s intellectual property to its other foreign subsidiaries.

Australia
In December 2019 Google announced a settlement of a “longstanding” tax dispute concerning FY 2008 – 2018 with Australia’s Tax Avoidance Taskforce leading to additional payment of A$481.5 million.

France
In 2017, Google escaped a €1.12b French tax bill after a court ruled its Irish subsidiary, which collects revenue for ads the company sells in France, had no permanent establishment in the country France vs Google, July 2017.
However, later in September 2019 it was announced that Google will pay €945 million to settle a tax dispute in French courts. According to the announcement the payment consist of a €500-million fine for tax evasion, and a further €465 million to settle claims with French tax authorities.

New Zealand
A tax reform bill currently before the Parliament in New Zealand could force Google to abandon an “agency” arrangement used here, whereby it books hundreds of millions of dollars-worth of sales to New Zealand customers each year in Singapore. The new law may require Google to record those sales through its local subsidiary, Google New Zealand.

Google’s tax affairs has also been investigated by the Australian parliament.

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