Google’s 'Dutch Sandwich' shielded €16bn from tax

Google used two tax structures to shield the majority of its international profits from taxation

Jeremy Kahn
Tuesday 02 January 2018 17:29
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Google's Ireland arm has the right to license the search giant’s intellectual property outside the US
Google's Ireland arm has the right to license the search giant’s intellectual property outside the US

Alphabet’s Google moved €15.9bn euros (£14.1bn) to a Bermuda shell company in 2016, saving at least €3bn in taxes that year, regulatory filings in the Netherlands show.

Google uses two structures, known as a "Double Irish" and a "Dutch Sandwich," to shield the majority of its 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 Ireland-registered company.

The amount of money Google moved through this tax structure in 2016 was 7 per cent higher than the year before, according to company filings with the Dutch Chamber of Commerce dated 22 December and which were made available online Tuesday. News of the filings was first reported by the Dutch newspaper Het Financieele Dagblad.

"We pay all of the taxes due and comply with the tax laws in every country we operate in around the world," a Google spokesman said in a statement. "We remain committed to helping grow the online ecosystem."

Google is under pressure from regulators and authorities around the world for not paying enough tax. Last year, the company escaped a €1.12bn French tax bill after a court ruled its Irish subsidiary, which collects revenue for ads the company sells in France, had no permanent base in the country. The European Union has been exploring ways to make US technology companies, many of which use similar tax shelters, pay more.

The Irish government closed the tax loophole that permitted "Double Irish" tax arrangements in 2015. But companies already using the structure are allowed to continue employing it until the end of 2020.

According to US financial filings, Google’s global effective tax rate in 2016 was 19.3 per cent, which it achieved in part by shifting the majority of its international profit to the Bermuda-based entity.

The total pool of foreign earnings Google was holding overseas, free from taxation, was $60.7bn at the end of 2016, the company said in its SEC filings.

New Law

The US tax law passed last month would give companies such as Google an incentive to repatriate much of that cash by offering them a one-time, 15.5 per cent tax rate. After that, foreign earnings would be taxed at 10.5 per cent, although companies can deduct foreign tax liabilities from this amount.

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

Google Ireland collects most of the company’s international advertising revenue and then passes this money on to Dutch subsidiary Google Netherlands. A Google subsidiary in Singapore that collects most of the company’s revenue in the Asia-Pacific region does the same.

The Dutch company then transfers this money on to Google Ireland, which has the right to license the search giant’s intellectual property outside the US. That company is based in Bermuda, which has no corporate income tax. The use of the two Irish entities is what gives the structure its "Double Irish" moniker and the use of the Netherlands subsidiary as a conduit between the two Irish companies is the "Dutch Sandwich."

Bloomberg

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