It’s a strategy that has saved the US internet giant billions of dollars in tax. Because Google earns almost all of its foreign income in Ireland, the company has been able to capitalise on differences between the US and Irish tax codes to move the profits from Ireland to Bermuda.
According to the Financial Times, Google has benefited from that arrangement even more in the last year by paying €8.8bn of royalty payments to Bermuda in 2012, a quarter more than in 2011.
The figures were revealed in the latest filings by one of Google’s Dutch subsidiaries, Google Netherlands Holdings, and means that royalty payments made to Bermuda – where the company holds its non-US intellectual property – have doubled over the past three years, the newspaper reported.
Google also makes use of the ‘Dutch Sandwich’, whereby it routes earnings through Holland in order to avoid witholding taxes.
Revelations about Google’s cosy tax arrangements have already fired up public anger in the last year, although it is not the only big business to face the public wrath -Starbucks and Amazon have also been grilled by parliament about their tax activities.
‘We pay lots of taxes; we pay them in the legally prescribed ways,’ Eric Schmidt, Google’s executive chairman, told Bloomberg late last year.
In June this year, MPs on the Public Accounts Committee recommended HMRC investigate Google’s tax affairs after it paid just £10m in tax despite generating £11.5bn in revenue from the UK in 2012. Prime Minister David Cameron said he was ‘determined’ to put an end to the ‘secretive companies in secretive locations’ which cost billions of pounds in lost tax revenues.
But can this actually be done in practice? The government may have a tough job on its hands.