The Tax Haven That's Saving Google Billions

http://www.businessweek.com/magazine/content/10_44/b4201043146825.htm

by petethomas • 16 years ago

285 286 16 years ago

scaleordie• 16 years ago

What was my tax rate again? Oh yes, somewhere around 40%... Nice to see that everyone is doing their share.

duke_sam3• 16 years ago

As the article points out they have an obligation to maximise profits. If there was a way to cut your tax rate from 20%+ to less than 5% and they didn't use it, it would be a breach of their duties.

It's amusing to see how effective industry lobbyists have been in shutting down any reform that would close these loopholes. Lets talk about slashing entitlements but completely stonewall any attempts to get corporations paying more tax...

DougWebb• 16 years ago

I've got an obligation to maximize profits too: an obligation to support my family. But I don't have the resources Google does to set up complex income shifting tax avoidance schemes, and for that I'm heavily penalized by paying a much larger share of my income in taxes than a company like Google does.

If these big companies want to have the rights and privileges that citizens do (treated as legal entities, freedom of speech through political contributions, etc) then they should have to play by the same rules and with the same encumbrances.

countersignaler• 16 years ago

Is it not the case that all Google profits are eventually taxed again as capital gains or income taxes?

guelo• 16 years ago

Is it not the case that as money moves around the economy from one person to another it is taxed over and over again many times? Why do some people only think of capital gains as "double taxation"?

maukdaddy• 16 years ago

Unless you made a shitload of money I highly doubt your effective rate was 40%. The rate on the last x% of your money might have been taxed at 40% but most places have a progressive tax structure. Deductions should lower the effective rate further.

I'm speaking for the US, by the way.

camiller3• 16 years ago

Yeah, my combined marginal federal and state rates are like 33%, my effective rate after mortgage interest and charitable deductions was like 8-9%. I'm going to try to be more like Google though.... ;)

pbiggar2• 16 years ago

If he made shitload of money, he'd be doing tax mitigation of his own, and probably wouldn't pay 40% either.

tomjen3• 16 years ago

Well better start working on getting it down, rather than get annoyed at Google.

jbooth6• 16 years ago

From the article:

"Google's practices are very similar to those at countless other global companies operating across a wide range of industries,"

So, why's the article about Google? Shouldn't the article be about "countless global companies" bilking us for billions? I'm astonished at the lack of outrage on this issue every time it comes up.

karl113• 16 years ago

Agreed, I think Goldman Sachs has their effective rate down to less than 2%.

solutionyogi2• 16 years ago

I had a hard time digesting this claim, I looked up on Google and found this:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...

In 2008, GS's effective tax rate was 1%!

chollida1• 16 years ago

A claim like this should always be backed up by some proof.

gaius3• 16 years ago

Because countless global companies don't claim to be "not evil".

Anyone Google hires in the UK (up 'til now anyway) has been educated at the expense of the taxpayer, for example. If someone breaks into their offce, the police will show up to investigate. Why shouldn't they pay their fair share?

iwr• 16 years ago

My neighbour should not get screwed harder so we are made equal. There's no such thing as a "fair share" of rape.

Besides, if you look at the things the government is doing with the money recently vs. what Google is, there is no contest!

camiller3• 16 years ago

Yes, and those taxpayer educated employees go on to pay income tax...rather than drawing welfare (or whatever you call it in the UK). In general the better the education, the higher the pay and the greater the income tax revenue from those employed individuals.

calloc• 16 years ago

So? Then the UK needs to close the loopholes that allow Google to operate this way.

Google is not obligated in any way shape or form to pay more for taxes if there are rules and regulations that state they can operate their business in a certain way that allows them to not be taxed for that amount of money.

As a socialist I don't agree with that (I am from Europe), and I wish they did pay more taxes as it would certainly help the various governments there provide social services, at the same time I can definitely see that Google who is accountable to its shareholders and has to make as much money as possible is going to use the loopholes to keep as much money and not have it taxed.

jeroen• 16 years ago

Because "Google has managed to lower its overseas tax rate more than its peers in the technology sector". They're all doing it, but Google is doing it best.

dtf2• 16 years ago

Because Google have a public image of behaving ethically. Everyone expects banks and evil multinationals to do this kind of thing.

Is it ethical to avoid paying tax as an individual? Many would say no. But when a company does it, they lay their blame on the shareholders and the market. So the more outrage about this subject, the better. Our governments can either raise taxes or lower taxes. But they shouldn't let individuals and business get away with pretending to pay taxes when they're not.

pg• 16 years ago

Is it ethical to avoid paying tax as an individual? Many would say no.

Do you mean avoid (by legal means) or evade (by illegal means)? Any government that uses tax incentives to affect citizens' behavior is saying it's ok to avoid taxes. If they promise your taxes will be lower if you do x rather than y, they're counting on your desire to avoid taxes to motivate you to do x.

cperciva• 16 years ago

Is it ethical to avoid paying tax as an individual? Many would say no.

They might say that, but their actions -- buying from duty-free stores, contributing to tax-deferred retirement accounts, filing jointly with a spouse, and claiming every possible deduction -- suggest quite the opposite.

There's a world of difference between illegal tax evasion and legal tax avoidance, and all indications point to what Google is doing as being tax avoidance. How many individuals went to the IRS and said "here's how I'm planning on reducing my income taxes; can you see any problem with this"?

lionhearted6• 16 years ago

> Is it ethical to avoid paying tax as an individual? Many would say no.

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands" — Judge Learned Hand

jbooth6• 16 years ago

>Because Google have a public image of behaving ethically. Everyone expects banks and evil multinationals to do this kind of thing.

I hate that crap. It's possibly the worst thing about our media.

Mountain-top removal by coal mining company devastates 100 SQ mile ecosystem in West Virginia? Doesn't even make the paper.

Al Gore's electricity bill is high? PAGE ONE BABY. Al Gore's electricity bill is approximately 1 / 100,000,000 or so of the problem. But it makes us feel good to give do-gooders their comeuppance. Serves them right, for trying to improve things and making us feel bad that we don't do more ourselves.

tyn5• 16 years ago

Can someone explain why companies should pay taxes at all? Their shareholders should and they do pay taxes according to their income but what's the purpose of an extra taxation to a legal entity?

llimllib• 16 years ago

> bilking us for billions

It's my understanding that the way we've defined fiduciary duty (roughly speaking) requires public corporations to do this if it's legal. Can anyone comment on that?

jbooth6• 16 years ago

Sure. Yes, you're right.

So we should redefine tax law so that it's not legal, and have everyone pay their fair share. Only ourselves to blame, I'm certainly not blaming corps for chasing dollars.

benmccann• 16 years ago

This is a commonly accepted best practice in corporate accounting. In 2006 the IRS approved Google's transfer pricing arrangements. Also, it's so common that there is a name for it - "The Double Irish". Bloomberg recently had an article on the same topic: http://www.bloomberg.com/news/2010-05-13/american-companies-...

daniel-cussen• 16 years ago

Wow, these popups are unbearable.

riffer• 16 years ago

http://lab.arc90.com/experiments/readability/

http://summarity.com/bookmarklet_front

karl113• 16 years ago

What this should signal, is that the US should lower its corporate tax rate. Even just making it competitive with other developed nations would probably generate more revenue for the government. And though it would still be higher than the effective rate many companies pay with all these transfer schemes, it would make the hassle less worthwhile.

However, what it will actually cause lawmakers to do is increase regulations to make income transfers like this illegal, and leave the corporate tax rate as is.

spoiledtechie• 16 years ago

The US Corporate Tax is one of the lowest in all the world.

http://www.qbalance.com/Corporate_Tax_Rates_United_States.ht...

But Bermuda still beats out us at ZERO corporate tax rate.

charlief3• 16 years ago

Including others for comparison from Wikipedia (http://en.wikipedia.org/wiki/Corporate_tax), interesting to note that Vancouver, Canada, small business is taxed 13.5%, and to no surprise, there are many startups in Vancouver:

Examples of corporate tax rates for a few English-speaking countries include:

Australia: 30%, however some specialized entities are taxed at lower rates.

Canada: Federal 11% or 18% plus provincial 1% to 16%. Note: the rates are additive.

Hong Kong: 16.5%

Ireland: 12.5% on trading (business) income, and 25% on nontrading income.

New Zealand: 30%

Singapore: 17% from 2010, however a partial exemption scheme may apply to new companies.

United Kingdom: 21% to 28% for 2008–2010.

United States: Federal 15% to 35%.[18] States: 0% to 10%, deductible in computing Federal taxable income. Some cities: up to 9%, deductible in computing Federal taxable income. The Federal Alternative Minimum Tax of 20% is imposed on regular taxable income with adjustments.

marklabedz• 16 years ago

...And when some country is offering ZERO, any X% >0 will not encourage companies to shift their tax structures back to the US.

jacoblyles5• 16 years ago

What website are you reading? 35% is damn high by international standards. I read that US Corporate tax is the second highest in the entire world.

karl113• 16 years ago

Actually, you are wrong, we have one of the highest corporate tax rates in the world when you also take into account the state tax: http://www.taxfoundation.org/research/show/22917.html

duke_sam3• 16 years ago

Ireland usually gets a bad rep from this but companies like Intel, Google and MS are the biggest employers in the country. If they were there for purely tax reasons you'd expect them to be shell companies, rather than having multiple fabs in the case of Intel or a few thousand employees in the case of Google.

grellas• 16 years ago

Google is "flying a banner of doing no evil, and then they're perpetrating evil under our noses," says Abraham J. Briloff, a professor emeritus of accounting at Baruch College who has examined Google's tax disclosures.

Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes? I understand that governments might want to consider these as loopholes and seek to end the right of U.S. taxpayers to avail themselves of these tax-minimization strategies. But, as long as it is legal, why should a company voluntarily seek to expose itself to higher tax rates when it has the choice not to?

I guess when you as a company claim the high ground ("do no evil"), you will have people making their own judgments about what ethical standard ought to govern your conduct and this would explain this professor's remark. By that measure, though, one could argue that companies such as Google should seek to attribute all their revenues to California because that is where their main intellectual property development efforts have occurred and hence pay corporate tax rates at one of the highest rates around simply because they "owe" it to California.

I get this question all the time from web-based startups: why run our revenues through a high-tax state when we have the option of running them through all sorts of lower-tax venues and saving on taxes? The universal answer for smaller companies is "set your company up in a way that let's you pay the least tax you can legally."

Why should Google be held to a different standard on penalty of having its perfectly legal actions castigated as "evil"? Is it the view of some or many in the HN community, for example, that a private enterprise has a form of "social responsibility" to voluntarily subject itself to the tax rates of whatever domicile it happens to have its major operations in (in this case, California) when it legally has the option not to do so? That seems unwise by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."

lionhearted6• 16 years ago

> That seems absurd by free enterprise standards and I am genuinely curious to know why refusing to do this would be called "evil."

When taxes come up, it tends not to be a well-thought, cohesive, pros-and-cons thing. It tends to be an emotional/identity thing. Some people think and almost always argue it'd be a good thing if companies gave more money over to governments.

Me, I think it's very good for the world on every level for Google to pay less taxes. They're hiring the best people, acquiring companies and giving liquidity to founders, run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing, and their high level personnel seem to invest really well too (like in genetics research). Anyone who thinks that England would do a better job with the money than Google hasn't been to England, or hasn't thought this through very much.

rbranson• 16 years ago

Obviously we should always look at large companies with skepticism, but Google is clearly building a long-term brand and trying to generate goodwill by investing in massive R&D efforts. This is rare among large companies. Most seem focused on the quarterly report. If they were IBM or Oracle, who undoubtedly have similar practices, perhaps I might feel a little more betrayed. I still believe Google, for the most part, is not evil.

Thankfully though, we are a nation of laws. As much as I despise the practices of some businesses, I am perfectly happy that it's not any one person's single opinion that keeps these companies in business.

dbingham12• 16 years ago

Well, it's up to England's citizens to change the efficiency of England's government. Google is doing great things. By but dodging its taxes, it is forcing ordinary citizens to pay more. Or make do with less.

It doesn't matter whether it would do better with the money. I think I could do better with my tax money than the US government. But then, that's not my choice to make. My job is to work to make sure that the US government does better with my tax money. Not to deny the government the money. If I don't pay, someone else will have to. And that's not okay.

It's like saying I need your sandwich more than you do. I'm hungrier, I could make better use of it, therefor I should get your sandwich. Even if I could legally take your sandwich. It's still not okay. It's your sandwich! If I take it, you go hungry.

loumf• 16 years ago

It's neither good nor evil. Google's board and executives are legally obligated to maximize shareholder value. Shareholders can sue otherwise. If governments want more tax, they should close loopholes and Google will comply with the law.

Anechoic3• 16 years ago

run amazing free services (search, Gmail, Google Earth, Google Maps, Google Finance, Google News, Google Voice, Google Reader, Feedburner, many many others). Also, they're internally investing in energy and robotics like the auto-driven cars thing

None of those products/services would be possible but for the government spending taxpayer money to develop the infrastructure behind those services (the internet, roads, GPS, etc).

jdietrich• 16 years ago

It's a curious thought, but I actually think I'd prefer to be a subject of Google than Her Majesty's Government. Larry, Sergei, if you're reading - please make a bid for UK PLC. It's weighed down with debts and the current management are a shower of shite, but the headquarters are pretty swanky and I hear there are some great engineers on the payroll in Cambridge.

MalUK2• 16 years ago

Why is England mentioned in this comment? Google Ireland is based in the Republic of Ireland, which is not related to England.

notahacker5• 16 years ago

The NHS employs a lot more people than Google and carries out research and development into saving people's lives. Sure, what Google does is great, but I'm really not convinced that thinking up ever more creative outlets to display targeted advertising is necessarily a better outcome for society than spending the money on the UK public sector, which has many worthwhile projects of its own. I'm going to go out on a limb here and say that sometimes multimillion sums are better spent on schools and hospitals than buying startups to wind up (big companies, like governments, have a tendency to overpay and make some blunders). The original article pointed out that Google owed its very existence to that paragon of state-sponsored inefficiency: the research university.

Calling it "evil" to carry out their fiduciary duty by legally shifting tax burden to the less well-off might be a stretch, but it's equally a stretch to suggest that we're better off because Google pays less tax. It's not as if they'd be dirt poor if they paid a tax rate comparable to that of profitable startups...

lsc• 16 years ago

my problem with it is not so much that google is paying fewer taxes, but that this complex tax structure encourages "innovation" in tax avoidance rather than innovation in things that actually create value.

How much money goes into building and checking the legality of those tax avoidance schemes? a lot, I bet. I'm fairly certain, for example, that my company would not be able to afford something like that.

A simpler tax law not only makes things more fair (maybe it's just sour grapes, but I don't think it's fair that there is one tax rate for corps like mine, who have one part-time accountant, and another, much lower tax rate for giant corporations that can afford massive teams of tax lawyers.) but it makes the economy more efficient. The goal of closing those loopholes should be to make it in Google's best interest to spend their effort on, say, improving search rather than avoiding taxes.

A1kmm• 16 years ago

Company taxes are, in most parts of the world, levied on company profits, not company revenues. So if Google paid higher taxes, company expenditure would be the same, but dividends and / or share price would be lower. So the only point that still stands is 'giving liquidity to founders'; I'm sure the founders already have enough capital to bootstrap practically any innovative tech business they want.

dbingham12• 16 years ago

It's not just Google who is evil. They're just getting called out on it, because they've pledged not to be evil. It's rather expected of other corporations because we expect them to operate with out morals in search of maximum profit.

But any corporation that takes advantages of tax loop holes, legal or not, is doing evil. By doing that they are taking money out of the pockets of every day citizens in every country who's taxes they avoid paying. Because those citizens have to either make up the difference, or cut vital services such as education, infrastructure, health care and the social safety net. And those citizens can very ill afford to make up the difference.

There are exposes like this done once every few years decrying how low the real tax rate is for some large corporation or other or group there in. Really Google ought not have been singled out by this round. All corporations that do this are being evil. But Google's promised not to be evil -- and for the most part has upheld that -- so they are being targeted.

Really, the most moral course of action here would be to pay the taxes and lobby for the closing of the loopholes. And if they feel the tax rate is too high -- the lowering of the tax rate.

retube• 16 years ago

You could argue that the moral thing to do is maximise profit for shareholders (this is what they are legally required to do anyway). By deliberating paying more taxes than they need to shareholders will be penalised (smaller dividends etc).

roc3• 16 years ago

Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money. They hire employees educated with government money, buy research projects funded with government money, build data centers that depend upon public infrastructure, etc. Frankly, without government money, Google would not exist.

By gaming the tax systems, they're not only flipping the bird to the ladder they stood upon to create Google, but they're strangling the future pipeline for the very government products they depend upon.

And people only call Google out for crap like this because they insist on running around claiming they "Do No Evil". They set the bar higher for themselves. If they didn't want it there, they should shut up about it already.

yummyfajitas5• 16 years ago

Most of their tax money would not be spent on the specific items you describe. For every $100 google spends in taxes, roughly $16 will be spent on education (mostly education for underachievers who would never work at google), $4.90 will be spent on transportation infrastructure, $0.30 will be spent on basic research and $0.1 will be spent on communications infrastructure.

On the other hand, for every $100 google pays in taxes, $23.2 will be given to unproductive old people and $14.8 will be given to unproductive non-old people.

It's a fallacy to focus solely on the desirable components of government spending. The lions share of taxes are simply transfers from productive people to unproductive people. If Google wants to avoid this, I see nothing wrong with that.

Travis4• 16 years ago

+1. This is similar to the major reason I despise the band U2 (besides their awful music): they bitch and moan about helping poor children in Africa. They even recently complained that the British gov't doesn't send enough money to impoverished countries. But they have a major tax haven set up that deprives the gov't of tax revenue.

You just need to be consistent. Google has gotten a lot of benefits out of their "Do No Evil" motto; in my mind, they are held to a higher standard than GE or IBM.

babblefrog• 16 years ago

Why is it evil for companies to take advantage of tax breaks, but the lawmakers who created the tax breaks get a pass. Shouldn't it be the lawmakers who are responsible?

pjscott• 16 years ago

> Ethics aside, Google shouldn't seek to deprive nations of tax revenue because they benefit in no small part from that money.

I think the issue that people are disagreeing on here is who would make the better use of money: Google or a government? If Google paid $1 million more in taxes, would that be a net benefit or detriment to society? Google can do good things with that money, and so can a government. But which one can give higher marginal utility?

donaq• 16 years ago

They hire employees educated with government money...

And those employees pay more taxes because they draw high salaries paid to them by Google, which they could not have gotten without their education.

ced• 16 years ago

why wouldn't any international business do whatever it could legally do to minimize its taxes?

As a lawyer, what's your perspective on lobbying?

If the laws are ultimately chosen by the companies and the wealthiest, then I don't agree that "anything legal is fair".

ataggart2• 16 years ago

>If the laws are ultimately chosen by the companies and the wealthiest...

At least with respect to the US, politicians are still needed to pass bills into law. The solution to your concern falls out of the simple realization that politicians can only sell the powers they have been delegated by the people. Grant them the power to make and break whole industries, and don't be shocked when those potentially affected come calling.

oogoog2• 16 years ago

I agree. But practically, a government must have a way to mollify powerful interest groups or you end up with revolution and chaos. I think American democracy does a fantastic job of producing a stable and fair environment. But I'm not convinced it does the best possible job. As you say, it leads to complex system of laws that are not fair.

As a westerner newly living in Asia, I can see Singapore delivers good, efficient government and they respond to citizens complaints like a good company responds to its clients. Taxes are low, simple, and are done on a post card. I think thats the advantage of not being a democracy.

However, its not clear to me how they manage their powerful interest groups. I suppose brute force plays a role. But honestly, I doubt there is any more brute force used in Singapore than in the US. And I would trust Singapore to be more fair and even handed.

My guess is that China models itself after Singapore. I think thats where China is trying go. If they can get there -- and its not clear to me that they can -- in my opinion, it will be a more successful form of government than the democracies of the West. But they have a long way to. Singapore is a small island in a unique political and economic situation and I think that makes a huge difference.

nhebb2• 16 years ago

I can't speak for others, but my alarm wasn't with Google. Instead it was with a tax system that allows these kinds of loopholes. When people talk of expiring the Bush tax cuts for those making over $250k, my jaded response is that it will probably only affect those that are well to do but not really rich. I think the really rich can afford tax lawyers that let them avoid substantial taxes via other loopholes.

elai5• 16 years ago

You're talking as if the US should receive the revenues for this foreign sourced income (notice this is out side of the USA income, not internal US income). As if google is only mountain view, CA. And as if these corporations don't contribute hugely to their headquarter country in employing tens of thousands of people who pay generously harvested income, payroll, property and other taxes and spend the majority of their money in the local economy not to mention made thousands of new local millionaires who develop their home economies even further.

charlief3• 16 years ago

The characterization of "evil" is too strong. The focus should not be on Google, but on the world's corporate tax system because it doesn't accomplish what it was set out to do. In terms of the level of fairness and for the purposes of generating domestic revenue, it is broken. A specific tax revenue distribution was intended, and that is why the particular tax levels were set, but instead the levels change dramatically for the most sophisticated participants.

Maybe the answer is to make these tax management/arbitrage services more accessible to everyone and every business to allow the democratic/political/capital system put pressure on the issue. I imagine the overhead is great, but there should be a way consolidate or ease it, I am sure some innovative minds out there will find a way.

metabrew• 16 years ago

Don't blame the player, blame the game.

Tax loopholes should be closed in law, Google and other corporations have a responsibility to their shareholders - why shouldn't they act within the law to save money?

I remember seeing a fun flow-chart of the IKEA tax avoidance scheme. Didn't have as amusing names as those used in this article though :)

bl4k5• 16 years ago

tech guys have server naming schemes, lawyers have offshore tax-minimization entity naming schemes.

(personally if I ever got that big, I would name them all after characters from The Wire - just so I could say thing like 'lets shift all that to prop joe corp'. Hearing it all told back to you in court would be even more amusing.)

xenophanes• 16 years ago

I think it'd be illegal for Google NOT to use tax shelters. They have to maximize shareholder value. They can't just give money away to whoever they feel like for no reason, including to the US Govt.

vegai• 16 years ago

The answer in HN's context should be obvious: It is 'evil' because these techniques have nothing to do with making a superior product, and it is 'evil' because it puts newcomers to a market into an inferior position: they don't have the resources to use the same techniques.

SriniK• 16 years ago

Right on grellas. Every other company does this and there is a corporate tax industry around these loop holes.

Apple operates Braeburn Capital http://en.wikipedia.org/wiki/Braeburn_Capital Microsoft is known for borrowing its own money from foreign countries to avoid repatriating tax. Because borrowing is cheaper than paying repatriation tax. Broadcom is known for using R&D tax credits(for spending money in US for R&D) and Singapore and other lower tax states when it comes to selling goods and realizing income. Even Oil/financial companies are known to set up shops in overseas just to avoid paying higher taxes.

When someone's career is to find ways to reduce taxes, companies will find whatever way to achieve it.

robk• 16 years ago

"Don't be evil" != "do no evil"

Many people confuse the latter for the original statement, when it was in fact the former.

rue• 16 years ago

> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes?

Evil is a moral judgment, not a legal one.

codexon6• 16 years ago

> Maybe it is the lawyer in me, but why wouldn't any international business do whatever it could legally do to minimize its taxes?

It all comes down to ruining competition which is crucial for capitalism to improve the quality and decrease the cost of services for society. Do many startups have the money to hire a bunch of lawyers to find out the latest tax loophole and the money to setup multiple shell corporations?

I think not.

Confusion• 16 years ago

  Maybe it is the lawyer in me, but why wouldn't any
  international business do whatever it could legally do to
  minimize its taxes?

It's the lawyer in you and he's misleading you. It's not a question of doing what they can do. The economist in you should conclude that it is a question of doing what they must do in order to remain competitive. You can't choose to 'do no evil', when all your competitors are doing evil. That road leads only to bankruptcy, as they can undercut your prices, because they pay much lower taxes.

This is one of the examples explaining why capitalism is fundamentally incapable of providing any moral guidelines. It doesn't care about what is right, only about what turns a profit.

kragen3• 16 years ago

I guess when you as a company claim the high ground ("do no evil")

The slogan wasn't "do no evil", which is impossible, but "don't be evil," which is much closer to being within reach; and its intended audience was Google employees, not people outside the company. Google probably should have aggressively refused to comment on rumors that this slogan was widespread, rather than publicly confirming it.

A cynic might argue that the constant press attacks on Google resulting from this slogan are from people who have resigned themselves to being evil and are angry that someone else has the courage to attempt otherwise.

anigbrowl4• 16 years ago

why wouldn't any international business do whatever it could legally do to minimize its taxes?

The argument for not doing so (or at least, not going to such lengths to minimize the tax burden) is political rather than legal. I don't think it's 'evil,' incidentally, so please take the following as descriptive rather than proscriptive!

What happens when a company expands overseas? Well, it's a coup for the receiving country. There's a ribbon-cutting ceremony, speeches are made about the number of jobs it will create, people feel good about the past taxes they paid that went towards educating the workforce, and and there's a general expectation that the country will pick up 'a bit of the action' in three ways: by collecting some taxes from a successful business (pure rent-seeking, but after all that's part of why investing in education and infrastructure seemed like a good idea to begin with); by attracting other businesses in the same sector and getting a 'hub effect,' which will build up a secondary market serving these firms' ancillary needs (eg payroll, new real estate etc.); and a long-term benefit as employees of the Big Foreign Corporation develop world-class skills and later some of them start companies of their own or guide university researchers etc., making the country's economy more competitive and modern.

What happens is a little different. Usually the incoming firm has negotiated a favorable tax regime with the local government, and the long-term benefits of the secondary market and skill development are estimated to be greater than the foregone tax revenue. When I grew up (in Ireland) the usual approach was for the government to give a 10 year tax holiday in return for building a factory and training the employees, on the theory that the business would be OK with paying tax at the normal rate after a decade. But quite a few companies just shut down their factories when the 10 years ran out, because paying taxes was more expensive than setting up anew in some other developing economy and shipping the product. Of course, then the secondary market that had grown up servicing the industrial and consumer demand for local services would collapse.

So gradually there was a shift towards less rent-seeking (by allowing this sort of accounting manipulation) in return for the hope of increased long-term stability in secondary markets and skill growth. Unfortunately IMO, what has happened with a lot of tech and financial companies that moved to Ireland in particular is that that little technology transfer takes place. For example, Microsoft used to be a fairly big employer in both the UK and Ireland (not sure about now), but the bulk of the work was technical support and localization, rather than software engineering. Similarly most of the financial business in Dublin was backoffice processing because it was cheaper to do it there than in London or Paris (plus it gave UK companies an easy in to the European market). Jobs like that are less sticky if the tax regime changes, and while they probably do make the country's economy more competitive the gains are smaller and over a longer term than people anticipate - hence the endless supply of stories about some new location attracting a few tech companies and declaring itself to be 'Silicon _______.'

The secondary markets which provide ancillary services to the firm and its local employees thus do best out of such an arrangement, and a lenient tax regime keeps them going for longer - in practice, as long as wage differentials are sustainable for the parent company, and there isn't an equally capable workforce available to do the task for substantially less. Service jobs (at the foreign firm) are somewhat sticky because you can't move your call center from Dublin to Shanghai - but you might be able to find that in Bangalore. Meanwhile, if enough foreign firms set up shop in a country and a thriving secondary market grows up to service their ancillaries - plant, payroll and infrastructure for the firm itself, housing and consumer services for the happy employees. Of course, this tends to overheat the local economy: if you think the US property boom was out of control, you should have seen the Irish one. The price/earnings ratio for housing in Dublin shot up to 100:1.

Predictably, the party stopped right around the time when the cost of living had inflated wages high enough to make Ireland a less attractive destination for multinationals. Irish people were feeling so prosperous and skilled at making money that nobody wanted to do boring things like farm work or child care, and so the country saw an influx of Polish farmhands and nannies who everyone agreed made great workers. Several multinational firms came to the same conclusion; Dell used to have a manufacturing plant near my hometown in Ireland which was the largest local employer, but decided to close it and open a new one in Poland instead, resulting in the loss of ~2000 jobs. Of course the former employees still have their skills, but assembling PCs on an assembly line turns out not to be all that special, and my understanding is that Dell had a policy of not recruiting for management from the local workforce, or even hiring skilled people who were likely to apply for internally-advertised management positions rather than stay on the assembly line.

(Please bear in mind that I'm drastically oversimplifying here, so as not to make this comment even longer.)

anigbrowl4• 16 years ago

(part 2/2...sorry about the length folks)

OK, so what does all this have to do with Google? Well the problem is that such companies are welcomed when they set up overseas, and great expectations accompany them. And in the short term, there seems to be a distinct increase in prosperity - but people tend to extrapolate the growth trend endlessly into the future, and spend the money almost as fast as they make it. When the inevitable inflation ensues, they tend to feel they got a bad deal and go protectionist or sometimes enact draconian new tax policies. Oh, and the Irish government is also in bad odor with other European countries, who have felt for a while that the country took advantage of its small size to get away with significantly undercutting its neighbors on corporate taxes during the good times, leaving a correspondingly deep fiscal hole now.

Back in California, people look at the overseas investment made by the multinational and conclude that if the expansion actually cost the firm a lot less than imagined, then the favorable domestic tax treatment of the overseas operations (an indirect export subsidy, in effect) essentially amounted to the US taxpayer bankrolling their overseas expansion without any of the benefits coming back to the US Treasury later. But isn't that good for overall US competitiveness? Maybe, but who was Google (or Yahoo, or...) competing with internationally when it set up shop in Europe - Baidu? I can't even name a UK or Euro search competitor of any significance off the top of my head.

So it's not obvious what US taxpayers gained by letting Google out of paying US taxes on Euro/Eastern Hemisphere operations. Sure, Google expanded its operations and brand, and indirectly the economic reach of the USA, but as they were also getting a sweet legal/taxation regime at the other end - much lower than the headline 12.5% corporate tax rate in Ireland - then it seems as if the vast bulk of the benefits went to Google. OK, they have to pay tax somewhere, but Bermuda, like most tax havens, is such a small country that even a tiny slice in 'fees' is a huge feast. Again, like most tax havens, Bermuda's actual contribution to the global economy is almost nil; about the only argument you can make in their favor is that they contribute to increased liquidity.

There's a worthy philosophical debate here about the ultimate economic value of exporting low tax rates. But in the short term, the pragmatic result is that governments of more developed countries feel scammed, because they obeyed the popular wish of investing in things like infrastructure and education in hope of a long-term payoff, and now that they find themselves distinctly short of cash it's hard to explain why the payoff has failed to materialize (or why they didn't manage it very well, when it did). Of course, there's a little bit of hypocrisy going on here - well, actually a lot. Governments are often getting sweetheart deals on the back end; this arguably represents a transfer of wealth from the US to the populations of other countries, even if only in terms of lost wages for jobs that are not location-specific.

As neither the US nor the Irish or Dutch treasuries saw a great direct benefit, routing all the money through Bermuda has the political (not legal) appearance of a money-laundering operation. Particularly in Ireland, where people paying 20-40% in personal income taxes and almost 20% in VAT (sales taxes) are wondering what is the point of having one of the world's lowest rates of corporate tax (12.5%) if the government doesn't even collect most of it from large foreign firms. This is exactly the sort of thing that tends to give people the idea that it might be better to just have their treasury own shares in the company instead, a strategy employed with varying degrees of success in places like Venezuela and France.

I want to make it clear that I personally don't subscribe to the idea of state-owned industry or the idea that you can tax your way to economic success. There are reasons Europe doesn't produce the kind of industrial giants the US does, and why the European software industry is much less competitive than that in the US - they're not all to do with heavy-handed industrial/tax policy or regulation, mind, but those things do play a big part.

But when there is a good deal on offer (such as Ireland's low corporate tax rates, much cited in the US during recent years), the short-term tax savings of trying to further minimize tax liability have to be weighed against the long-term skepticism that manifests at the bottom of a business/economic cycle. Google is a smart company and may decide it has an interest in writing a $500m check or so to the Irish government now, rather than risk being frozen out of the European market in the future by penal regulation or hit with fines from the EU's muscular competition commission. Possibly the US government too, rather than being subjected to excruciating Congressional hearings. At the very least, they are probably going to have to give up using the 'double Irish' method of moving their money around. Bermuda will have to sit through some chilly diplomatic meetings and make some concessions about the transparency of its financial reporting or the accounting standards it uses, as have other tax havens of yore such as Jersey, Monaco and so on.

To sum up, I agree with George that from a legal (and short-term economic) point of view, running profits through Dublin and then putting them through some quirky Dutch-Bermudan slimming diet before running them back through Dublin is an entirely rational course of action. And it may well be a superior moral course of action, if you consider that Google contributes significantly towards the common good by making a wide variety of high-quality services available to the public for nothing - services on which large chunks of the US economy have come to depend, and I include myself in that. I honestly can't think of another company that makes such a generous value proposition, and don't find the price of personally-targeted advertising very onerous.

But from a political point of view, the practice is unsustainable and deeply unwise. Entrepreneurs and fiscal/transactional engineers are a small minority of the population. Some chunk of the population leans left and thinks corporations should be taxed much, much more severely, because the infrastructural foundation of their business model was heavily subsidized by the public. Another chunk leans right and while not being in favor of taxes much, sees no reason why the US taxpayer should be indirectly subsidizing people in other countries like Bermuda or Ireland. Then you have centrist voters who may not understand or care much about the details but are worried about US jobs going abroad, a rising deficit, and can grasp the basic idea that Google is using a legal fiction to reduce tax liability. Go there's a good chance that Google is going to find itself being the national punching bag for the next week or three.

wallflower• 16 years ago

Of course, this pales in comparison to Ikea, the world's largest non-profit furniture retailer

http://en.wikipedia.org/wiki/IKEA

rmc5• 16 years ago

In Ireland, these kinds of tax breaks are one of the foundations of our economy. They aren't viewed as a way to give a hand out to the big companies, but as a way to create jobs. This article mentions that 2,000 people are employed in Google Dublin. Given Microsoft, Amazon, Intel, IBM and Sun also operate, there's easily 10,000+ people employed thanks to our low tax rate. There are only 1,000,000 people employed in Ireland (small country), so the loss of these 10,000+ jobs (~1%+ of all employees) would be massive.

Ireland has very little industry, very little traditional ways to grow the economy. We all know if it wasn't for the tax breaks these companies wouldn't be here, and that there'd be loads of people out of work.

fiveo3• 16 years ago

I hope you guys can find other means/ways to create jobs. I live in Vancouver where hi-tech companies receive generous amount of SR&ED (Science Research and Education) grant. Let's just say that it was a good thing for short-term but not-so for long-term.

elai5• 16 years ago

Could you go into more detail?

borism10• 16 years ago

And that's the reason Ireland has something like 1000% external debt to GDP [1] - politicians and local businessmen alike got so drunk with their success of luring in corps that they assumed it will continue forever.

The reality is however, that taxes will have to be raised and the corporations will leave for yet another island paradise, and that will result in social catastrophe either way.

[1] http://en.wikipedia.org/wiki/List_of_countries_by_external_d...

yummyfajitas5• 16 years ago

Um, Ireland had a big property bubble, which is the cause of their current troubles.

High corporate tax rates didn't prevent a property bubble in the US or Spain, why would they have prevented one in Ireland?

rmc5• 16 years ago

Ireland's current financial problems are probably due to the property bubble. However there's been massive unemployment (it's tripled in 3 years to 14%), do you really think the government are going to force all these high tech jobs out of the country now?

pbiggar2• 16 years ago

Judging from the tax limitation described in the article, increasing the corporate tax rate for Google Ireland to 100% wouldn't make it leave.

joshklein• 16 years ago

I was going to leave a comment about corporate citizens not doing their fair share in America, but that got me thinking: should corporations pay tax? I'm not asking this rhetorically to make a point. Really, should they?

I would imagine that whatever profits are passed along to shareholders are taxed as capital gains. So, while it is a great headline to say Google pays 2.4% corporate tax, might it also be fair to say "Google shareholders pay 2.4% additional tax on top of the regular tax they pay on their income from capital ownership."?

Now, I'm not at all aware of how capital gains taxes and wage-style income taxes compare, and my inner liberal slant / desire for social justice inclines me to believe that those with the means should pay MORE than their "fair" share.

But I can't help but think that, at least at a theoretical level, there is someone, somewhere, who makes their living investing in corporations - lubricating the gears of capital society - but isn't phenomenally wealthy, and actually pays a total higher % of their "income" than a wage slave making a comparable amount of money. VCs? Angels? Wouldn't we as a society want to reward this behavior?

I can just as easily see the other side; maybe in theory this is right, but the reality is that capital gains are the domain of the ultra-wealthy, and corporations are frequently used as tax havens, pushing money around from holding company to holding company. If the corporation buys something and the owner uses it, that's an effective way to minimize your total "income" without losing the benefits of your wealthy lifestyle.

I would love to hear thoughts on this, particularly from anyone more familiar with tax law.

dbingham12• 16 years ago

Yeah, I'm not familiar enough with tax law to know the details of tax laws. I'm sure they're terribly written. Especially in the United States. We need desperate tax reform. Really it ought to be the first place we look for solving the deficit: closing loop holes and raising taxes. But if those two words are put in the same paragraph as each other -- "raise" and "taxes" -- there's mass panic.

nysauhem• 16 years ago

"The setup lowers Google's overseas tax bill, but it also affects U.S. tax revenues as the government struggles to close a projected $1.4 trillion budget gap."

It's a ridiculous notion that any single corporation's tax contribution will put even the slightest dent in the budget deficit. Government spending is like gas in a vacuum, it will expand to fill whatever space you give it.

ceejayoz4• 16 years ago

Google is hardly the only corporation doing this.

jacoblyles5• 16 years ago

Government spending is up 100% over 10 years. Maybe someone should look into that.

vermontdevil• 16 years ago

But the US can actually reduce the gap by cutting down on wasteful spending (see Iraq and Afghanistan adventures). This should be a priority but alas our politicians love to spend and that applies to both sides.

dh• 16 years ago

As entrepreneurs in the US are trying to create jobs and companies we pay 30%+, just not fair.

jonpaul2• 16 years ago

I would hope most entrepreneurs don't have the attitude of "it's not fair." Maybe it isn't fair. But as we all know life isn't fair. Meta-discussion aside, any entrepreneur worth his salt won't be thinking like this.

hop• 16 years ago

They follow the letter of the law. If the law is bad, change the law, don't bash Google for managing it's tax liability cost effectively and accuse them of being evil.

ceejayoz4• 16 years ago

"Don't be evil" and "Don't break laws" are very different things. If Google's motto was just "don't break laws", they wouldn't be inviting quite so much criticism for legal-but-dubiously-ethical stuff like this.

hnal943• 16 years ago

It's not evil to keep money you earned.

dangrover• 16 years ago

Startup idea: Company that cheaply sets up individuals/small companies to evade taxes in the same way big corporations do. You pay a subscription fee or something and they fill out the returns and set up a PO Box in Bermuda or whatever.

froydnj• 16 years ago

Seriously! Reading the article made me think, "wow, trying to piece together where companies go and who owns what sounds like fun!" (No, I'm not a lawyer.) Certainly sounds like an optimization problem where a computer could do an especially good job (assuming that you can represent everything efficiently).

barmstrong2• 16 years ago

This is what I was thinking too (made a separate comment before seeing this): http://news.ycombinator.com/item?id=1816651

I will say that this seems like a company that should be started by lawyers and not programmers though.

sedachv• 16 years ago

I was going to ask: how can startups (and in particular YC companies) apply similar strategies once they start making revenue? And how can they scale out? What would be really interesting is to see the evolution of the corporate/tax structure of Google as the company grew.

bl4k5• 16 years ago

There are tons of companies who sell shelf companies online. ie. $800 and we ship you a corp registration, a bank account, an office address etc.

For small companies with a single office etc., that is all that an offshore tax structure is.

The point is that when you structure these things, you don't want anybody to notice and you want to be a small target. Being a client of a startup whose intended purpose is to minimize your tax bill is the opposite of remaining unnoticed.

charlief3• 16 years ago

Welcome to the world of tax arbitrage. More information:

http://www.freshfields.com/publications/pdfs/2007/boyle.pdf

http://faculty.chicagobooth.edu/austan.goolsbee/research/mun...

http://ideas.repec.org/a/eee/pubeco/v93y2009i1-2p142-159.htm...

pragmatic• 16 years ago

This story resonates because of the hypocrisy.

http://www.google.com/intl/zh-CN/corporate/responsibility_en...

"Look at how great we are" type giving: http://www.prnewswire.com/news-releases/the-brin-wojcicki-fo...

We hear corporate leaders (Gates, Brin, et al) lecture on social responsibility, yet they undercut the very structure of society by skirting tax laws.

How will we build universities, roads, public infrastructure without tax revenue?

Now the hacker in me says, knowing how corporations behave, how do we fix this? Do we have tax laws that encourage corps to pass along more earnings to share holders? Implement 0% corporate tax rate and then capture tax revenue out of individual capital gains and taxes on dividends?

It's one thing to rage about this, it's another to come up with a solution.

elai5• 16 years ago

I would trust google to spend its money more efficiently than any government. People tend to talk about government as the only socially responsible charity in town and the money not forcibly taken is somehow wasted in some black hole.

dennisgorelik3• 16 years ago

Are you implying that giving money to politicians to spend is the most socially responsible act possible?

aristidb• 16 years ago

Does Google not pay plenty in income tax on its employees, who in fact do generate that precious intellectual property? Looking only at taxed profits is misleading.

ceejayoz4• 16 years ago

How is that at all relevant?

If I steal a couch from a furniture store, I don't get to defend myself in court by saying I bought a table from them.

jmaygarden• 16 years ago

Who stole anything in this case? That's not a valid analogy as one act is legal and the other is not.

jonpaul2• 16 years ago

Am I one of the few who doesn't see a problem with this? If our tax structure is so f'd up that it allows for this, we need to change it. In the meantime, why wouldn't Google minimize its tax liability?

If you're an entrepreneur and are against this, I hope you voluntarily don't take the tax breaks afforded to you, or else you're a hypocrite. Lunch with business partners? Better not write that off. Your internet or cell-phone? Don't write that off either. Part of your apartment where you code for 5 hours a day? Don't write that off either.

Aegean2• 16 years ago

this is one reason youtube is banned from Turkey, the minister claims it is because they make revenue in turkey and don't pay tax. It might be a valid reason.

The second reason though (going off topic) is because they don't have anyone to talk to in turkey for censoring stuff, which is very evil of them.

elai5• 16 years ago

And every other website in the world that might make advertising revenue off of turkish customers and have no censorship contacts?

Aegean2• 16 years ago

funny, I seem to be downvoted by the minister's men.

klochner• 16 years ago

Google will get taxed if it brings any of that cash back into the US (repatriates the money) to pay dividends or acquire domestic companies.

The same goes for Goldman, et al., unless congress passes another "repatriation holiday" in the name of stimulus.

jackfoxy• 16 years ago

I see this story delivering a full dose of irony that will be lost on so many people. Google is a company that chose to affiliate with progressive causes and personalities almost from the start. And one of the central tenants of progressivism is business and the wealthy should pay their fair share of taxes (meaning a proportionally higher share). But this state of affairs can never really be reached. (Please give me a pass on this assertion, the argument is long. Doesn't this story provide an iota of supporting evidence?) Ultimately people pay taxes, and there are many more poor and middle class than rich.

philiphodgen• 16 years ago

(I do this stuff in my day job).

Leave aside the moral outrage and any sentence that has "should" in it. You're not being rigorous in your analysis.

Next, think of the tax code as a giant bucket of Lego pieces. Google - and many other multinationals (including very small startup tech companies of the type that spring from the loins of YC) - simply assemble the Lego pieces as they choose.

Looked at as a strictly engineering exercise? No big deal. Hire better engineers (people like me) and get better results (cooler tax-Lego structures).

OK, put on your moral outrage hats again. We are finished with the tax engineering. Let's move on to the social engineering. Because that is what we are talking about when we say "X _should_ pay more to support government functions.". Except for a few people we will have general consensus that a government is good and services need to be paid for. It's just a giant "Not out of my wallet!" game now. Sometimes logic, sometimes "Think of the children," sometimes whatever argument you can muster. All of these devices are used to deflect the tax collector's attention to someone else's wallet.

That is how I look at this topic. And from this perspective I derive two conclusions:

- if you don't like the way multinationals create their Lego structures, change what is in the bucket of Lego pieces. That is the job of Congress, not Google.

- if you plan to change the laws, expect the argument to devolve quickly to uninformed "think of the children" arguments because politics is purely that. No A/B testing is done. Statistical analysis is bent to prove a point, not looked at dispassionately to optimize decisions.

Two last points.

- Every dollar Google makes will eventually go out to employees, vendors, and the government. (At the moment they don't pay a dividend, so the shareholders do not get anything directly). A corporation is not some giant Jabba the Hutt that grows bigger to infinity. It is ultimately just a money collector and distributor.

- the particular game they are playing in fact acts as a net revenue transfer mechanism from the US Treasury to the Irish government. I will have to find the article that describes this so clearly. I'm on my phone right now in downtown LA about to give a speech in a few minutes. I'll be back. (Heh. What a disappointment he turned out to be for California).

danilocampos• 16 years ago

I had a distinct Randroid phase where I thought it was almost a moral obligation to avoid taxation. Now things are fuzzier for me.

I make a truly decent wage. Not an earth-shattering one but a wage that beat the hell out of anything my mom made while I was growing up. I am a very fortunate man.

Heinlein wrote a thing about freedom:

"In terms of morals there is no such thing as a ‘state.’ Just men. Individuals. Each responsible for his own acts. I am free, no matter what rules surround me. If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them. I am free, because I know that I alone am morally responsible for everything that I do."

In my case, I find taxation to be tolerable. It finances things like education for people with fewer advantages than I have right now. Ideally, a much bigger proportion of my taxes would go there. It also finances stupid things, like the TSA and DHS, and that's unfortunate. It financed military adventure in Iraq, which I find repugnant.

But I want to live in a society where you're not screwed based on the number you draw in the ovarian lottery. Where you can be taught useful skills to make the most of the opportunities you find. Where you don't have to pay for this privilege – until later, when you pay taxes. I'm not aware of any scalable solution to this that doesn't involve taxation of my earnings.

So I tolerate the imperfect because it's what I've got. Until there's a better way to ensure that the next generation isn't screwed by bad luck, I can't avoid that taxes are how I can do my part for the moment.

Meanwhile, Google is free to break or bend the rules, too. If they share my values on this subject, I'd hope they'd do their part in some other way. But that's up to them.

jacoblyles5• 16 years ago

Why don't you spend some of your own money directly on the causes that you like? About 1/3 of American taxes go to the military, and another 1/3 goes to non-means tested social support programs (not necessarily benefiting the poor). The amount going to better education opportunities for poor people is absolutely negligible, especially since the sitting government is hostile to school choice.

Think with your head, not your heart.

HardyLeung• 16 years ago

As always, Google did an excellent job making money left and right. You gotta give them credit for that.

On the other hand, they are a bit "disingenuous" (Jobs' favorite word to describe Google) about their mantra, as ultimately this profit is made at the expense of American citizens (lower tax revenue). Why does it matter? Well it matters because they (tangibly and intangibly) benefited greatly then and now from the "Do No Evil" mantra, and they should accept that it comes at the price of people holding them to a higher standard. It is "Do No Evil", not "Do Less Evil" or "Do No Evil When Convenient".

brianbreslin• 16 years ago

The first thing that popped into my head after reading this was "That is straight up gangsta" . Honestly I don't fault them for doing the most allowable under the law. Hat-tip to google's army of accountants and CFOs for figuring out these massively profitable loopholes.

neilc• 16 years ago

Irving H. Plotkin, a senior managing director at PricewaterhouseCoopers' national tax practice in Boston, says that "a company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally."

This is a pet peeve of mine: company directors are not obligated to minimize costs or maximize profits.

http://crookedtimber.org/2008/07/25/what-obligation-maximise... http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013744

josiahq• 16 years ago

LOL Google Ad irony: http://api.markup.io/v/1qy21z5axxkv

AlexMuir• 16 years ago

I'm glad google keeps it's money and invests in developing google maps, streetview, and gmail. The government would (and does) pay billions to IT consultants to build much shitter systems.

In the UK our government has sunk billions into the Royal Mail, but we still have to pay thousands a year for just a fraction of the functionality of google's geocoding.

newman314• 16 years ago

I think it is a double standard that US companies get to avoid taxation worldwide while US individuals have to be taxed on worldwide earnings (regardless if it was earned in the US).

To me, it's insane that the US government feels that this is reasonable.

known2• 16 years ago

Big companies think & act in terms of priorities and not what is right or wrong.

zooey3• 16 years ago

Companies are about money. Countries are about people. Taxes build services that are used by people. "Web Services" doesn't count too much as a service. I would live without google search no matter what people say. But what about hospital, street, public transportation, cheap houses for poor people, and on and on and on...our society is based on taxes. The reason why people have to pay taxes is to build a better society. Look at what is happening in Britain with Cameron: no money to fix the deficit. Poor people take it all over their a@@#@.

And, to put that simple, we are not talking about a couple of thousands dollar a software engineer is not paying: we are talking about millions (billions?). Greed is bad, is fucking bad. And all this talking about disruptive innovation is usually a bunch of stupid Internet Services to play with. I think the hacking community is overestimating its value.

No cancer cure. No cheap energy. No cleaner air. Just some web app, iPhone app, something app.

Google taxes would fix a lot of problems, just letting millionaires a bit more poor. I can live with that, why you can't?

known2• 16 years ago

Americans paid 92% income tax in 1950s.

barmstrong2• 16 years ago

Has anyone thought of or seen a startup designed to bring these kinds of tax advantages to average citizens?

There would be a real value in streamlining this legal process of creating shell companies or whatever is needed in some sort of mass market approach.

It seems like the only people this is available to are big companies or high net worth individuals who can afford expensive one-on-one consultation with accountants/lawyers.

Andrew_Quentin• 16 years ago

Tax law changes all the time. It is a cat and mouse game. Loopholes are closed, lawyers see the statue which closed them and come up with other loopholes which are closed...

A start up could possibly hire such lawyers to do what they do for national for the general public, but possibly each individual has his own requirement and tax lawyers are quite expensive.

SkyMarshal• 16 years ago

If this scheme saves them that much money on overseas corporate taxes, why send your sales revenues to Ireland, and then jump through these hoops to avoid taxes on them, in the first place?

Why not move that part of the company, that collects all international ad revenue and whatnot, to the Netherlands or Bermuda, and just skip the tricky step of getting the money out of Ireland?

joshu• 16 years ago

If Google thinks that they can more efficiently contribute to the public good by using the savings to provide services directly than by paying taxes, they have a moral obligation to minimize the taxes.

aneth• 16 years ago

Lots of business practices are considered legal but sleazy, and above-board companies won't engage in the them even if they increase profits - from high pressure sales tactics to child labor where it's legal. Why is it that companies like Google and Microsoft are given a pass on using their many-million dollar legal budgets to push the US tax burden onto the rest of us?

wolfenkraft• 16 years ago

I really don't understand why we allow these things. Letter vs. Intention of law should matter, right? I don't think a lot of the tax code and business rules were written with the idea that a company would actually span continents or maybe not even have a physical presence.

ggchappell• 16 years ago

Are we missing something here, maybe? Google, as a legal entity, is really nothing more than a piece of paper in someone's filing cabinet. As a corporation, it is just a legal vehicle for shuffling around money and managing liability and ownership.

On the other hand, the people who work for Google are ... people. And I'm sure the great majority of them pay plenty of taxes (income, payroll, etc.) in whatever jurisdictions they live in.

One of the primary functions of Google-the-entity, is to get that money to the people. In doing so, Google-the-entity pays very little tax, but the people pay lots. So the money is taxed, government programs are supported, and all is well.

To put it a different way, Google's tax strategy can be considered as a way to minimize the effect of governments taxing their people twice.

pinchyfingers• 16 years ago

Am I the only one who believes that taxes are evil? I can't wait until I can afford lawyers to help me get out of paying taxes. If if I break even I'd rather see my money going to a professional than a government,.

cletus• 16 years ago

The most important part of this article is:

> The government has made halting steps to change the rules that let multinationals shift income overseas. In 2009 the Treasury Dept. proposed levying taxes on certain payments between U.S. companies' foreign subsidiaries, potentially including Google's transfers from Ireland to Bermuda. The idea was dropped after Congress and Treasury officials were lobbied by companies including General Electric (GE), Hewlett-Packard (HPQ), and Starbucks (SBUX), according to federal disclosures compiled by the nonprofit Center for Responsive Politics.

The issue is that the US (like many countries) has the best tax code money can buy. The US has the additional problem of dual sovereignty such that the states are competing with themselves to offer tax breaks to lure in companies and thus jobs.

Companies are like water: they seek the lowest level. They're not immoral, they're amoral.

A hideously complicated tax code is going to have holes in it so simplify, simplify, simplify.

motters• 16 years ago

Google should pay their taxes like everyone else. Charges of tax evasion aren't good for public relations.

TGJ• 16 years ago

Everyone else would find every available loophole they could given the chance. People just get mad because they are not the ones benefiting. It's human psyche to keep other people down if you're not going up.

bl4k5• 16 years ago

"Apple (AAPL), Oracle (ORCL), Microsoft (MSFT), and IBM (IBM)"

Those companies all sell hardware. Apple can't say 'lets book those Palo Alto store sales in Bermuda'. Ads served are a total volatile good (their value is the time they spend rendered on a screen infront of a user). Google has a huge advantage because of this (and it also makes the ad trade ideal for money laundering).

To relate this to startups :

If you are a startup and you are accepting foreign money and you are bringing it straight into the US and paying tax on it, then you are doing it wrong. A merchant account in Bermuda is easy to setup and is completely legal. If you are not doing all you can to minimize your tax obligation then you are not doing your job properly.

bl4k5• 16 years ago

Who cares. I would rather Google keep the money and buy a startup or two rather than the government spending it to buy another battleship or aircraft carrier.

dons• 16 years ago

That's odd. Since when has Business Week had "TL;DR" summaries at the end of the article?

privacyguru• 16 years ago

Google is smart and they are not alone in running their businesses like this. Pros and Cons -- sure the gov't misses out on some revenue but also many of those savings are reinvested into hiring and generating jobs and even more profits, which in the end, can still generate revenue for uncle sam.

The Tax Haven That's Saving Google Billions

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