Cash & Liquidity ManagementPaymentsGoogle Shifts More Payments to Bermuda to Reduce Tax

Google Shifts More Payments to Bermuda to Reduce Tax

Financial reports issued by a Google subsidiary in the Netherlands reveal that the search engine giant shifted €8.8bn of royalty payments to the island of Bermuda last year, employing a tax structure dubbed a ‘Dutch sandwich’.

The figure is a 25% increase on that for 2011, indicating the rapid expansion of a strategy that has saved the US group billions of dollars in tax.

The company moved its non-US intellectual property to Bermuda in 2003, with royalty payments on these doubling over the past three years, according to reports from the
Financial Times
.

By channelling these payments through Bermuda Google’s overseas tax rate is reduced to around 5%, less than half of the rate paid in Ireland, where the company already receives a low-rate on its international sales.

Using a ‘Dutch sandwich’ tax structure Google last year paid royalties of €8.6bn from Google Ireland Ltd and €232.8m from a Singapore operation into a Dutch subsidiary named Google Netherlands Holdings.

All but €10.4m of these royalties were then paid out to Google Ireland Holdings, a company incorporated in Ireland but controlled in Bermuda. This dual-citizenship means that Ireland Holdings is treated as Bermudan for Irish tax purposes but Irish to the US authorities.

Google’s ability to substantially reduce its tax bill has attracted particular criticism in the UK, the company’s biggest market after the US, which accounts for sales of nearly US$5bn but where it paid only £11.6m in corporate tax in 2012.

Google’s executive chairman, Eric Schmidt, retorted that the company’s actions are entirely legal, and that it is the government’s responsibility to change the tax system. “If the British system changes the tax laws, then we will comply. If the taxes go up, we will pay more, if they go down, we will pay less. That is a political decision for the democracy that is the United Kingdom,” said Schmidt in May.

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