

Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion - cyphersanctus
http://www.bloomberg.com/news/2012-12-10/google-revenues-sheltered-in-no-tax-bermuda-soar-to-10-billion.html

======
VMG
Most economists agree that corporate taxes are bad anyways:
[http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-
pl...](http://www.npr.org/blogs/money/2012/10/18/163106924/a-tax-plan-that-
economists-love-and-politicians-hate)

 _"The corporate income tax makes no sense whatsoever," said Robert Frank, a
professor at Cornell. "We don't want to prevent Microsoft and General Motors
... from investing more and improving their product line," Baker said. "That's
a good thing in my view."

Our economists said if you want to tax rich people as public policy, then tax
rich people — tax the people who own corporations. But taxing the corporation
itself is taxing the thing that really does create jobs._

In my personal opinion, the money does more good in Google's hands than in the
government's hands.

~~~
Alaskan005
_In my personal opinion, the money does more good in Google's hands than in
the government's hands._

Ok then: in my opinion my money is better in my hands, but I have a hard time
convincing the IRS. My wife and my family agree with me too, by the way. Who
is going to pay for the roads and the military and the......

~~~
davidw
Corporations can't hold on to money forever: at some point it goes to actual
people. For the sake of argument, without saying whether it's a good idea or
not, you could make a revenue-neutral elimination of corporate tax by raising
taxes on people.

~~~
kale
I'm not an economist, so this is layman speculation, but it seems that taxing
corporate money would encourage the company to re-invest it more quickly. Some
have said that reducing corporate taxes (and increasing taxes on money when it
actually goes to people) would provide more money to create jobs/grow the
business. Wouldn't there also be a reduced incentive re-invest the money?

~~~
davidw
Taxing it would mean they had less of it to spend. They might spend it
depending on tax breaks, but that might skew incentives in terms of forcing
companies to spend the money on _something_ for themselves rather than see it
disappear in taxes. That something might not be the best investment though.

------
cryptoz
Maybe it's because I'm young and don't have experience with large-scale tax
problems, but I have struggled for years and still cannot understand why
companies do this. Is it _truly_ in Google's interest to work towards the
minimization of government capability wherever it is? To ensure that
California roads are less taken care of? To ensure that any local public debt
is increased rather than decreased? It doesn't make sense to me. Wouldn't a
company _want_ to contribute its share of taxes to the government of where it
is located, so that the quality of life is better for everyone there including
the employees?

It seems to me that Google, especially being in California, is being...well,
something close to evil by making sure they help out their local governments
and people _as little as legally possible_.

I understand that their profits are higher each quarter because of this. I
understand that's what shareholders demand. But _why_?! Can this attitude lead
to anything except terrible news? I just don't get it.

~~~
nikcub
Google pay taxes on all US income (not to mention payroll taxes, consumption
taxes, etc.). There is a massive miscomprehension of these tax stories as they
portray Google, Apple etc. avoiding all taxes when this is not the case. The
income housed in Bermuda is from non-USA receipts, each of which have already
passed through a local tax jurisdiction from wherever they were generated.
They _are not_ avoiding any taxes.

The reason they are kept offshore is because if the funds were naturalized
back in the USA they would be double-taxed. It is difficult to argue that
Google should pay local taxes once where a product is sold and then pay taxes
again on that same money when it is transferred back to the USA.

Many large corporations that hold large cash balances keep them offshore.
Around 75% of Apple's large cash holdings are held offshore. They have already
paid tax on that money. It is the US naturalization laws that are broken, and
the perception that Google, Apple et al aren't paying taxes or somehow
avoiding them.

The best thing the US Government could do would be to institute another
repatriation tax holiday. There is precedent for it as happen in 2004. As much
as a trillion dollars could make its way back into the US economy if a deal
could be worked out - a private mini-stimulus that the economy of 2 years ago
really needed.

~~~
alexkus
> Google pay taxes on all US income (not to mention payroll taxes, consumption
> taxes, etc.). There is a massive miscomprehension of these tax stories as
> they are portrayed as Google, Apple etc. avoiding all taxes when this is not
> the case. The income housed in Bermuda is from non-USA receipts, each of
> which have already passed through a local tax jurisdiction from wherever
> they were generated. They are not avoiding any taxes.

Saying they've paid anything in the "local tax jurisdiction[s]" isn't quite
true. In most cases they've passed through Ireland and the Netherlands, even
if the income is from other European countries. In most cases they haven't
paid any corporation tax at all on the profits made in the local countries.

Take Starbucks in the UK as an example. They had sales of £400m but paid £0
corporation tax by ensuring the company didn't make a profit in the UK. It
paid various license fees to foreign sister companies, and even purchased its
coffee from Starbucks Switzerland to help offset profits. £0 profit in the UK,
£0 corporation tax due.

> The reason they are kept offshore is because if the funds were naturalized
> back in the USA they would be double-taxed. It is really hard to argue that
> Google should pay local taxes once where a product is sold and then pay
> taxes again on that same money when it is transferred back to the USA.

They wouldn't be double taxed, the USA have double tax treaties with many
countries. The reason they keep it off shore is because they're waiting for
one of those amnesties that would allow them to bring the cash home to the US
and pay far less than they would have outside the amnesty.

Example with no amnesty:-

Google pay 12.5% corporation tax in Ireland on European Revenues by using
"license fee", loan or other perfectly legal schemes.

Google move money from Ireland to Bermuda tax free.

Google move money back into the US and pay (to the US) the difference between
tax due originally and tax already paid (in Ireland).

Net result is Google pay the standard 35% (or whatever it is in the US) tax on
the money. It's just a chunk of it goes to Ireland rather than the US.

Example with amnesty:-

Google pay 12.5% corporation tax in Ireland on European Revenues.

Google move money from Ireland to Bermuda.

US announce amnesty rate of 5.625% and Google moves money back to the US
paying a total of 18.125%. That's a whole lot less than 35%.

It's exactly those amnesties that mean large US corporations can do this.
Without them there would be little reason to hoard money offshore as it could
never get back to the US without the full amount of tax having to have been
paid on it.

~~~
AnthonyMouse
I agree that tax amnesties are stupid, but you've got the logic wrong. When
they've had them in the past, proponents were shocked at how few corporations
took them up on it.

The trouble is that there is no advantage to bringing the money back. If you
have your money in Bermuda, you can still invest it. You can buy securities,
or you can loan it back to your sister companies in higher tax jurisdictions,
and then the interest they pay you on it is generally tax deductible in the
higher tax jurisdiction. The loan gives you all the benefits of having the
money with none of the taxes. In that way they _do_ bring the money back --
they just don't pay the taxes.

Even if they brought it back through the tax amnesty, what happens then?
They've now got an extra billion dollars they didn't pay taxes on, so now they
go out and invest it and the returns are taxable in the higher tax
jurisdiction. Who thinks they're that stupid, when the alternative is to
invest the money in the exact same investments but have the profits go to the
sister company in the lower tax jurisdiction?

~~~
nikcub
I remember reading that the US Congressional sub-committee report into a
possible amnesty found that approx 50% of the money was back in the USA via
securities and loans anyway.

With the 2004 amnesty - you are right - but there are a few things you can't
do with offshore funds - which is why this time Cisco, Apple and the big
pharma co's are lobbying for an amnesty

You can't do acquisitions, you can't do a share buyback and you can't pay a
dividend.

If you are managing smaller reserves it makes sense to leave it offshore - but
with larger reserves such as with Apple investors want you to do more with it
(they want to _get paid_)

~~~
AnthonyMouse
>If you are managing smaller reserves it makes sense to leave it offshore -
but with larger reserves such as with Apple investors want you to do more with
it (they want to _get paid_)

If they hold stock in a company whose share price has appreciated as a result
of accumulating undistributed profits and they want money, they can always
sell some of their shares.

And are you sure they can't do acquisitions? What stops them borrowing the
acquisition money from their sister company, or doing the merger for stock?

------
rayiner
This quote stuck in my craw:

"Google said it complies with all tax rules, and its investment in various
European countries helps their economies. In the U.K., “we also employ over
2,000 people, help hundreds of thousands of businesses to grow online, and
invest millions supporting new tech businesses in East London,” the Mountain
View, California-based company said in a statement..."

Everybody contributes to the economy, not just entities like Google, and they
pay a higher tax rate for the income they derive through that contribution.
Bringing these issues up is asking for double credit.

~~~
iand
They are pointing out that they pay taxes on tangibles such as salaries, VAT
and business rates. Corporation tax is based on the fungible concept of profit
and really is unworkable.

~~~
pfortuny
Yeah, OK, however it is paid by all the other companies working in the UK,
Europe etc... and many have not the means to register at Bermuda...

I can bet they can manage pay no VAT (because this is a compensated tax, you
deduce what you spend...).

I may agree: corp. tax may be unworkable but saying "we are honest, we
contribute to the economy" is flatly insulting to the other companies which
cannot get away with it like Bermuda-based Google.

~~~
alexkus
> Yeah, OK, however it is paid by all the other companies working in the UK,
> Europe etc... and many have not the means to register at Bermuda...

They all have the means to register in Bermuda (or Cyprus or several other
countries used to offshore money), it's relatively simple for an accountant to
setup, but there's little point as the UK doesn't have any easy way to get the
money back into the country from offshore without paying the required amount
of corporation tax; so there's no point in sending it overseas in the first
place.

The US does have periodic amnesties that allow offshore money to be brought
back into the US at a reduced tax rate which makes hoarding it overseas for a
few years financially worthwhile.

Of course, there's nothing stopping a UK company with good cashflow (which is
required if you're going to be keeping lots of cash overseas in the hope of a
future amnesty) from moving their headquarters to the US and doing exactly
what these US companies are doing to pay little/no UK corporation tax.

------
jasonkolb
It's so frustrating to see this come up again and again and see people refuse
to acknowledge the reality of this. Corporations, separate taxable entities,
can be created on demand, and profit and loss distributed at will across them.
Given that, there's very little chance that a large company that knows what
it's doing will ever pay any significant taxes.

Argue about loopholes or Republicats all you want, this is fundamentally built
into our system and there is NO ONE who wants to take on changing it. I
guarantee you Romney and Obama BOTH know how this works and yet they play dumb
in tax debates for hours, and no one calls them out on it.

I think getting rid of the corporate tax makes sense because it would at least
level the playing field for smaller companies, but pretending that it makes a
difference for larger companies just demonstrates how uninformed the
electorate is.

------
DigitalJack
The only one at fault here are the governments that allow this. The government
is the one trying to collect money, they are the ones who make the rules about
collection, and they are the ones with the power to enforce said rules.

If governments are allowing this, it's because they want to, not because of
some accidental goof.

~~~
flyinRyan
It's surprisingly hard to get this right when companies can hire teams of
people who's only job is to find these kinds of tax avoidance schemes.

~~~
DigitalJack
Well, I surely don't know all of the subtleties involved. In fact, I'm quite
sure nobody does. Again, I'm being US centric here, but our tax code is pretty
absurd.

You can download a copy here:
[http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-...](http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26.pdf).
I've read in many places that the US taxcode is > 70,000 pages. Maybe that
includes state taxes. This pdf is a little over 3000 pages.

Still pretty complicated, and makes plenty of room for maneuvering in tax
avoidance efforts.

------
jstalin
I just love it when politicians express indignant outrage when they're the
ones who made the rules...

Tax competition is a good thing. Kudos to Google and Bermuda.

~~~
tomrod
I agree with this sentiment.

~~~
chollida1
That's what the up vote arrow is for.

~~~
tomrod
I also agree with this sentiment.

~~~
chollida1
woosh......

I think you missed the point:)

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clarkmoody
a) It is in the interest of all companies, shareholders, and consumers for
corporations to pay the smallest amount of tax possible. Higher taxes are
simply passed on to consumers in the form of higher prices or lower supply of
products.

b) All of this 'tax dodging' is perfectly legal. But the laws are not perfect
that incentivize this sort of behavior.

c) Of course the Europeans opt for some larger-government solution, all in the
name of 'fairness'. I say that much injustice indeed has been done in the name
of this fairness, since those with the lawmaking power are the ones who decide
what's 'fair.' These outcomes usually do not promote liberty, free markets, or
growth.

d) I'm sick of those who spout off this 'fair share' business about taxes.
Show me some figures on who is paying the taxes and who is free-riding (as far
as personal income tax goes), and I will then be able to hear an argument
about 'fair share.' Hint: the top few percent pay the vast majority of income
taxes.

~~~
ed209
d) ok, great! We'll all use off-shore companies to get our taxes down to a few
%. Then let's see how we fund the NHS, roads, infrastructure, education,
welfare and everything else you use daily that you don't pay for directly.

~~~
clarkmoody
You seem to have missed the point: government spending is far too high across
the board. You could tax the rich in America 100% and still not have enough
money to run the government for more than a couple months!

~~~
ed209
That's not what your point d) says.

------
ChuckMcM
From the article:

"Last week, the European Union’s executive body, the European Commission,
advised member states to create blacklists of tax havens and adopt anti-abuse
rules. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3
trillion) a year, are “scandalous” and “an attack on the fundamental principle
of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a
press conference in Brussels."

This is the issue. The Euro-zone is in a world of hurt and having a few
hundred billion euros would "fix" that problem. So they are gearing up to
change their tax laws, which is going to be a huge fight (taking money from
wealthy people or corporations is always strongly resisted by those people).

I see it as a side effect of the EU fiscal problem in general (the root of
which is non-soverign control over fiscal policy and _enforcement_ ) and
suspect it will impact Europe at least as much as the end of the cold war did,
if not more. I'm not entirely comfortable predicting what those effects will
be.

------
tomrod
I say good on Google. They've found a legal loophole that allows them to use
their funds more efficiently.

------
kmfrk
Are Google (depending on how you define their identity) bound to do this out
of fiduciary duty, or do they have some semblance of choice in this?

~~~
rayiner
In the U.S., there is no fiduciary duty to minimize tax liability or to
maximize profits. In any case the bar for a successful shareholder suit is
extremely high, and executives are given tremendous leeway in situations where
conflicts of interest aren't involved. I can't imagine that you could
successfully sue a CEO for a company's not taking aggressive tax positions.

Achieving low tax rates is largely about keeping up with Wall Street analyst
expectations. CEO's of public companies having to face a bunch of analysts
every quarter to discuss quarterly earnings, including after-tax earnings, is
a huge driver of this sort of behavior. CEO's are judged on how analysts view
their stock, and it's a horse race. If some other company makes $0.05 more
than you per share because of a lower tax rate, they are going to get credit
for that.

------
lmg643
I find it interesting that the tech titans, who seem to overwhelmingly support
high-tax politicians and policies, are also engaged in the most aggressive tax
avoidance in the world.

We only need to look at Europe to see how widespread tax avoidance plus high
government spending creates an unsustainable path that puts the entire economy
and country at risk.

Seems to me the only rational path is to either support lower government
spending across the board to complement the aggressive tax avoidance, or
demand that leading companies pay taxes according to the state or country
where the bulk of their employees are, and not based on wherever a shell
company may reside.

------
vincentperes
Don't be angry at Google, be angry at government. It's years that companies
are using this - I would call it a government failure. What I don't understand
is why - please tell me why - the EU is not doing anything to fix it? Irland
got billions from EU to get to the level where they are today (they were to
poorest country in europe before), don't tell me that the EU hasn't any way to
press Ireland or Netherland to change their law. Again, it needs to go through
the press to shake it a bit.

But isn't it also the same problem in the US? Some states have very low taxes
on business profits. So you can see very often companies having offices over
there?

------
fear91
Google is reaping benefits from the infrastructure built on taxes paid by
small companies and yet they fucking dare to say they do more good than them.

Fucking hypocrites

~~~
tomrod
What infrastructure are they using?

~~~
fear91
Fiber networks? Their employees security by funding Police and the Military?
Health care for their employees and customers?

What infrastructure are translators and lawyers using? They still pay normal
taxes because they extract profits from a given country and are ought to pay
taxes on it. One shouldn't argue whether he or she is ought to pay taxes. If
it was the case, 95% of companies and entities would argue that they shouldn't
pay a cent. All using their own, twisted logic.

No one wants to pay taxes but avoiding them is unethical and doesn't help the
society at all.

~~~
tomrod
They pay their access fee for fiber networks, surely. As they are paying for
all utilities.

Should police/military funding be used to protect corporations or citizens?
Are citizens paying it with take home salary? Google could hire their own
private military, likely for less than the tax burden you're implying they
should pay.

~~~
fear91
The same argument can be made for any company.

------
BenoitEssiambre
Can someone explain to me why we don't lower corporate taxes across the board
and raise dividend and capital gains taxes to compensate. It seems to me that
the later taxes are fairer and more difficult to dodge. Plus they encourage
reinvestment (eg. hiring) since money gets taxed when or if it leaves the
company.

------
pfortuny
I wonder... why do they not hire abut 2.000.000 people in Bermuda? That would
be very helpful to Bermuda's economy, would it not? Instead of just pumping
money into it, give them some jobs.

~~~
alexkus
They're waiting for a US tax amnesty (last one was in 2004) to allow them to
bring the money back into the US and only pay ~5% tax on it rather than 20% to
30% (depending on what has already been paid overseas) if they brought it in
now.

Apple has ~$74bn sitting off shore waiting for the same thing:
[http://news.yahoo.com/apples-phantom-taxes-hide-billions-
pro...](http://news.yahoo.com/apples-phantom-taxes-hide-billions-
profit-183821426--finance.html)

The European countries are annoyed because they're not getting any of it
(apart from Ireland who are getting 12.5% of a lot of this money as they're
one of the countries where these tax schemes do pay corporation tax).

~~~
pfortuny
And that allows them not to pay any taxes in the UK because...

I just don't get it.

And I don't care about Apple right now: this is a Google thread.

Edit: I obviously understand "how" it is done. I do not get why that gives
them the right to do so (apart from the obvious "being able to do that").

~~~
alexkus
Here's the simple version.

A company pays corporation tax in the UK on its profit, not on its sales, just
its profit.

Your UK company makes sales of £500m and makes £200m profit.

You offset this by paying a £200m 'license fee' (for nothing special, it's
easy to conjure up) to a company you also own based in Ireland. It pays just
12.5% corporation tax on this £200m instead of 28% in the UK.

That Irish company moves the money out to Bermuda in a similar way and there's
no corporation tax to pay between Ireland and Bermuda.

You can't go directly from the UK to Bermuda as the UK's existing tax laws
prevent that. Going via Ireland is the cheapest method (see "Double Irish").
Variants to help indemnify sometimes use a firm in the Netherlands (see "Dutch
Sandwich").

So, by paying a £200m license fee to another company the UK company has made
no profit, so it pays no corporation tax in the UK, despite sales of £500m.

Other variants include obtaining loans from the foreign companies and then
paying interest on these loans.

If you want to bring that money back into the UK again then the remaining
15.5% (28% UK corportation tax rate minus the 12.5% already paid in Ireland)
is due, so you're no better off than having just paid the full 28% in the UK
in the first place.

Eventually you want to have the money somewhere else than Bermuda, and in
Google's case this is back in the US, so they wait for the US Government to
announce another tax amnesty and bring it back into the US from Bermuda and
only pay 5% on it. Ireland wins (they get 12.5% for nothing really), the US
wins (they get 5% instead of nothing) and the UK loses out (it gets 0%).

My point about Apple was that Google aren't alone in doing this, nor are they
the biggest beneficiaries of these types of schemes.

------
digeridoo
Don't be evil.

------
yanw
Not sure I’m buying much of the righteous indignation going about regarding
corporate taxes these days especially when politicians partake in it. If they
put themselves into a situation where they have to depend on the moral choices
of multinational corporations they are part of the problem.

And in fact it’s not a moral issue at all but a legal one. And if the conduct
is legal then it’s not Google’s problem, is it?! the focus on Google in some
of this tax talk is indicative of some sort of a PR offensive against them by
governments and other bodies who aren't fond of Google and are using this as a
wedge issue against the company.

Everyone does it and it’s been done for a while, governments allow much of it
to encourage corporations to hire and invest within the local economies and
now they pretend to be surprised and appalled by it. This just reeks of
hypocrisy.

~~~
anon1385
Full disclosure: yanw works for Google.

~~~
yanw
I do not. Feel free to offer disclosures of your own though.

------
Alaskan005
We all know that always are going to be changed and earnings will drop by
quite a bit, the govs are starving for cash. They were always hungry but now
it's starvation time.

