Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Here's How Google Avoids Paying Taxes...

Posted by Tom Foremski - March 29, 2011

There's a fascinating article by Lisa O'Carroll in the UK Guardian newspaper about corporate taxes and how Google [GOOG] uses Bermuda and Dublin, Ireland to shelter taxes.

Here's how it works:

- Google's HQ is in Dublin, which has the lowest corporate tax rate of 12.5%.
- Google, however, wants an ever lower rate so it charges its European business a massive administrative fee by its Bermuda subsidiary.

And that's how a profit of 5.5 billion Euros turns into just 45 million Euros that is taxable in Dublin.

Lisa O'Carroll explains:

The 2009 Google Ireland Limited accounts show the company turned over a phenomenal €7.9bn in Europe for the year ending 2009 - up from €6.7bn the previous year.

The internet giant made a gross profit of €5.5bn, with an operating profit of €45m after "administrative expenses" of €5.467bn were stripped out.

Administrative expenses largely refer to royalties (or a licence fee) Google pays its Bermuda HQ for the right to operate.

This results in Google paying just 2.4% corporate tax -- the lowest of the top five US tech companies according to Bloomberg.

Foremski's Take: Why do countries and cities and states try to attract tech companies such as Google when they don't want to support the local community tax base?

Twitter, for example is trying to get out of paying San Francisco payroll taxes.

Yet the Obama administration believes that innovation from companies like Google and Twitter will help build jobs and provide the wealth to eliminate US deficits. Other governments have similar hopes.

That's a highly optimistic view and one that's not supported by the actions of those companies who seek the best deals they can get, and use every loophole to get out of paying a share of their profits to the communities where they live and work.

Social corporate responsibility is an oxymoron. It is investor responsibility that is the highest goal of corporate management.

It's the fiduciary responsibility of executives to maximize shareholder profits -- so why do executives at Google, Twitter, etc, talk about social responsibility when their actions show the opposite?

They should Google "hypocrites" because they seem to lack any self-awareness of their actions and shut up about corporate social responsibility. It's embarrassing.


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