Google in $10 billion Bermuda tax swerve

MONDAY, DECEMBER 10: Internet giant Google channelled nearly $10 billion in revenues to a Bermuda shell company last year, according to documents released by the firm.

Google avoided around $2 billion in income taxes around the world in 2011 by shifting the cash to the island – a sum almost double the total from three years before.

By legally funnelling the money from overseas subsidiaries to Bermuda, which does not impose a corporate income tax, Google managed to cut its overall tax rate by nearly half.

The amount moved to Bermuda is equivalent to around 80 per cent of Google’s total pre-tax profit in 2011.

The increase in Google’s revenues routed to the island were revealed in papers filed by one of the firm’s offshoots in Holland.

The news is likely to stoke outrage over tax avoidance methods used by global giants in Europe and the US.

Governments in the the UK, France, Italy and Australia are already examining Google’s tax avoidance schemes as they seek to maximise income in the recession.

And last week, the European Union’s executive, the European Commission (EC), advised member states to create blacklists of tax havens and adopt anti-abuse rules.

It is estimated legal tax avoidance and criminal tax evasion cost Europe around 1.3 trillion euros a year – a situation described as “scandalous” by the EC’s tax commissioner Algirdas Semeta.

US-based Google has said it complies with all tax legislation and its investment in European countries boosts their economies.

Google avoids high taxes by moving royalty payments from subsidiaries in Ireland and Holland to a Bermuda company registered at a local law firm.

Quoted by Bloomberg, Richard Murphy, an accountant and director of Tax Research LLP in England, said: “The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe.

“The political awareness now being created in the UK 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.”

Multinationals use “transfer pricing” to cut their tax bills – paper transactions among corporate subsidiaries that allow income to be allocated to lower tax jurisdictions and expenses to higher tax countries.

Google’s overall tax rate rate dropped to 21 per cent last year from around 28 per cent in 2008. The average US federal and state tax rate is around 39 per cent.

Last year, the firm reported a tax rate of just 3.2 per cent on the profits it said were earned overseas, mostly in Europe, where corporate income tax is between 26-34 per cent.