Wednesday, December 12, 2012

Google is Very Profitable – in Bermuda – Who Knew Bermudans Use Search Engines So Much

Welcome to the Wonderful World of Global Taxation

Google makes a lot of money,  and no one seems really upset at this or should be.  After all the company is highly inventive, has brought services to millions at good prices and is a major competitive factor that prevents folks like Microsoft from having a monopoly on many technology products and services.

But Google is also a tax avoider, and this should not be news.  After all Google is no less greedy than anyone else.  And their tax avoidance is legal.  And like other things that Google does, they do it well.

Google avoided $2bn tax by funnelling profits through Bermunda

Google managed to halve its tax bill last year and avoided $2bn (£1.2bn) of global income levies by funnelling most of its profits through Bermunda, regulatory filings show.

Matt Brittin, Director of Google UK, in Google's London Victoria office.
Matt Brittin said he did not mind the 'belligerent' grilling he had received from MPs on the Public Accounts Committee two weeks ago Photo: Geoff Pugh
Of course no one would if they had saved $2 billion plus in taxes and the only cost was a hostile committee hearing.

 Unlike Google information technology, moving taxable income into a tax haven like Bermuda is not a difficult problem.

The documents, filed last month in the Netherlands, show that Britain is Google’s second biggest market generating 11pc of its sales, or $4.1bn last year. But the company paid just £6m in corporation tax. Overall, Google paid a rate of 3.2pc on its overseas earnings, despite generating most of its revenues in high-tax jurisdictions in Europe.

The company reportedly uses complex tax schemes called the Double Irish and Dutch Sandwich, which take large royalty payments from international subsidiaries and pay tax in low rate regimes.

 Essentially what one does if one is a technology company is to house all of the intellectual property in a low tax jurisdiction.  Then profits are created in that jurisdiction by charging operations in high tax countries a big royalty payment.  For the company everything nets out, except the profits now end up in Bermuda.

The Dismal Political Economist has been to Bermuda.  It is a wonderful place.  He only hopes Google profits had as good a time there as he did.  Given their size and the low tax rate, he can only assume that they did.

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