‘Dutch sandwich’ grows as Google shifts €8.8bn to Bermuda
October 10, 2013 7:09 pm
‘Dutch sandwich’ grows as Google shifts €8.8bn to Bermuda
By Vanessa Houlder
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 figures were revealed in the latest filings by one of
Google’s Dutch subsidiaries, and means that royalty payments made to Bermuda –
where the company holds its non-US intellectual property – have doubled over
the past three years. This increase reflects the rapid growth of Google’s
global business.
The company has been at the centre of the international
controversy over corporate tax avoidance because it earns “substantially all”
its foreign income in Ireland and pays relatively little tax in the countries
where its customers are based.
It has also faced criticism for its use of a “double
Irish” structure that exploits differences between the US and Irish tax codes
to move the profits from Ireland to Bermuda. It also routes the profits through
the Netherlands to avoid withholding taxes, using a structure known as a “Dutch
sandwich”. Google declined to comment.
Revelations about Google’s tax planning have stoked
widespread public anger, prompting politicians to launch an international
crackdown on corporate profit shifting. The problems raised by digital
companies is one of the central issues being addressed by the initiative
launched by the G20 group of leading economies this summer.
In principle, multinationals such as Google that pay
relatively little tax overseas will face big bills in the US when they bring
their earnings back to the US. But Google has not provided for extra US tax
because it intends to permanently reinvest $33bn of offshore profits outside
the US.
The new figures come from the accounts of Google
Netherlands Holdings, which represents the “Dutch sandwich” part of the tax
structure. It received €8.6bn in royalties from Google Ireland Ltd and €232.8m
in royalties from Google’s Singapore operation. All but €10.4m of this was paid
out to Google Ireland Holdings, a company that is incorporated in Ireland but
controlled in Bermuda.
Differences between the Irish and US tax codes mean that
this dual-resident company is viewed as Irish for US tax purposes but Bermudan
for Irish purposes. It acquired much of Google’s intellectual property in 2003,
which it licensed to Google Ireland Ltd, a Dublin-based business that is at the
heart of its global operation. The business, which employed 2,199 people last
year, paid €17m in Irish corporation tax, having reported pre-tax profits of
€153.9 on turnover of €15.5bn.
Google’s UK operation, which provides marketing services
to the Irish affiliate, paid £11.5m in corporate tax in 2012, nearly double the
bill for 2011 but far less than many MPs and other critics believe it should
have paid. The UK is Google’s second-biggest market, responsible for almost 10
per cent of its sales, or almost $4.9bn last year.
In a stormy parliamentary hearing earlier this year,
Margaret Hodge, chair of the Public Accounts Committee denounced Google as
“evil” and accused it of “devious, calculating and unethical” behaviour by
booking sales in Ireland. But Google said this was an unfair representation of
the way it operated in which sales activity took place in Britain but only the
Irish business had the right to close the transaction.
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