As the FT report this morning:
Google funnelled €8.8bn of royalty payments to Bermuda last year, a quarter more than in 2011, underlining the rapid expansion of a strategy that has saved the US internet group billions of dollars in tax.
By routing royalty payments to Bermuda, Google reduces its overseas tax rate to about 5 per cent, less than half the rate in already low-tax Ireland, where it books most of its international sales.
The abuse goes on.
This story has come a long way since I did the first review of Google's tax for a newspaper in 2009.
But the abuse still goes on. And that's why international tax reform has to remain on the political agenda.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
The US tax system and especially its CFC and otehr international tax rules are basically crap and not fit for purpose! Not sure there are many other jurisdictions where it woudl so easy to park profits offshore, especially profits ‘passive’ income like royalties.
An easy solution (my opinion) would be for our local tax systems to impose withholding tax (at full local top tax rate) on royalties, interest etc. paid to a tax haven – whether paid directly or indirectly to it.
Mr Murphy,
Google is a US company, founded and developed by Americans, managed by Americans, and owned largely by American shareholders. Minimizing overseas tax expenses is not abuse. On the contrary, it is the fulfillment of the directors’ fiduciary duty to maximize the company’s returns to its various American stakeholders, including when applicable, the US treasury. American shareholders and taxpayers would take a very negative view of any payment to foreign tax agencies that was not strictly legally required. There would be conceivably ground for legal action against any company that would fail in its duty to minimize overseas tax payments.
Congress has specifically passed legislation allowing US companies to defer payments of corporation tax on overseas earnings until these profits are brought onto US shores. Google is availing itself of the rights thereby created, in full compliance with US laws.
As you are well aware, there have been discussions about reforming the taxation and timing of overseas earnings, as part of wider discussions about the US Tax Code. These discussions are ongoing, but will conducted strictly by Congress and for the benefit of the American people.
Regards.
No
Google UK is a UK company trading in the UK subject to UK law
If it wants to trade here it has a duty to comply with the spirit of UK law
You are as usual apologising for organised abuse
Mr Murphy,
Your comment is incorrect.
Google as a group, including but not limited to its UK-domciled subsidiaries, must comply with the laws as passed by the British legislature (including in application of UK treaties and directives) and interpreted by the courts, and NOT with their subjectively defined ‘spirit’. That concept, ‘spirit’, does not exist in law.
The issue of compliance with the ‘spirit’ of UK law is irrelevant for the matter discussed here. At hand is the issue of the location for tax purposes of Google’s intellectual property. Clearly, that property was not developped in the UK, and it is therefore only right (and fully accepted under the law), that Google’s UK operations should be charged royalty fees for its usage.
The level of these royalties would be the same, as would be their impact on Google’s UK corporation tax position, whether the Iintellectual property was based in Bermuda, California, Greenland, or for that matter the moon.
The only country affected by Google’s choice of Bermuda as its intellectual property base is the United States (and the State of California), whose receipts of corporate tax are deferred until Google elects to repatriate the earnings it generated. As discussed in y previous entry, this differal is in full compliance with laws passed by Congress.
Regards.
Oh what utter nonsense
The royalties aren’t even paid from the UK
Didn’t you know this is a permanent establishment issue?
Mr Murphy,
It was you who brought Google UK in this conversatio, not me.
We agree with you that Google UK, as a pure marketing support entity with no clients revenues, does pay any royalties for the use of Google’s intellectual property.
The issue of these royalties becomes then irrelevant from a UK perspective, as we previously discussed, and no abuse of UK laws cam be construed to have taken place.
Best wishes.
But I do not agree that Google UK is a pure marketing support entity
It isn’t
Don’t twist what I say
I think Google has an operation in the Uk that should be taxed in the UK and due to Art 5 abuse avoids that
Most agree
Which is why Art 5 is acknowledged to be well over due for review
So stop misinforming
“There would be conceivably ground for legal action against any company that would fail in its duty to minimize overseas tax payments.”
So, Mr Rubio, there’s a duty to minimize overseas tax payments but not, by extension, US tax payments. You cannot believe in co-operation between nations for the benefit of all of them. So much for the American Way; greed and more greed no matter what the cost to your neighbours.
Loving your neighbour as yourself
Like heck