Google saved $2B in taxes in 2011 by sending revenue to Bermuda

By on December 11, 2012, 7:30 AM

Apple has caught a ton of flack for keeping profits overseas to avoid paying hefty taxes on their earnings but many may be surprised to learn that they aren’t the only big tech brand engaging in such activity. Just last year, Google avoided paying roughly $2 billion in income tax by moving close to $10 billion in revenue to a shell company in Bermuda.

If you weren’t already aware, Bermuda does not have a corporate income tax. By moving money into the shell company, the search giant effectively reduced their tax rate by almost 50 percent. It’s all perfectly legal although it likely won’t sit well with those in the US and Europe that are opposed to corporate tax dodging.

Information on the redirection of funds was first made available in a filing on November 21 in the Netherlands. Google is already under investigation in a number of countries including Australia, France, Italy and the UK for similar tax avoidance practices.

Just last week, the European Commission told member states to come up with a list of tax havens for blacklisting purposes. According to the executive body, tax evasion or rerouting money to tax-free regions cost the European Union roughly $1.3 trillion each year. The EC feels the tactics are an attack on the fundamental principle of fairness and scandalous.

For their part, the search giant says they comply with all tax regulations and that their presence in various European countries helps the local economy. They also employ more than 2,000 Europeans and help thousands of online businesses prosper. That’s all in addition to investing millions in new tech businesses in East London, the company said in a statement.

Given all that Google and other large companies do for local communities, do you think they should be given any special tax breaks?




User Comments: 27

Got something to say? Post a comment
Ranger1st Ranger1st said:

Pay your taxes.. everyone has to do it. Your not special

3 people like this | misor misor said:

Tax avoidance is legal while tax evasion is not.

Fokissed Fokissed said:

U.S. corporate tax is outrageous. I don't blame them. I'd support a significant corporate tax cut AND a closing of this loophole, but not one or the other. Then companies won't have to jump through these ridiculous hoops to lower their taxes (and the ones that don't bother with these loopholes pay through the nose).

Guest said:

Any form of income tax is basicly - the more you invent, more you sell, better you are at your job, the bigger punishment you have to pay. And yes, it's a punishment for being a good businessman. I'm not saying that paying taxes is wrong, quite opposite actually, but that particular is just evil and highly unfair.

2 people like this | Burty117 Burty117, TechSpot Chancellor, said:

To be fair, Corporate Tax rates are ridiculous, I pay my taxes, but if I had to pay the same rates they do, well I would be using the loop hole.

1 person liked this | TorturedChaos, TechSpot Chancellor, said:

Agreed, corporate tax rates are insane. I have seen just how much the small business I work for has to pay, and its ridiculousness. There is a reason corporations try to find loopholes and any write offs they can. Its the only way to stay afloat.

Such as the story a few below this one that says " [link] ". They do it for the tax right off and the good PR.

2 people like this | MilwaukeeMike said:

U.S. corporate tax is outrageous. I don't blame them. I'd support a significant corporate tax cut AND a closing of this loophole, but not one or the other. Then companies won't have to jump through these ridiculous hoops to lower their taxes (and the ones that don't bother with these loopholes pay through the nose).

Is that you Mitt?

Google was a very large Obama contributor, and todays news has a story that Google's CEO Eric Schmidt may join Obama's cabinet (possibly secretary of commerce or treasury). We normally think of republicans as being guilty of 'corporate welfare', but allowing these loopholes to exist isn't any different.

I don't expect any of this to change... our country didn't vote for the guy who wanted to close loop holes, reduce the corporate tax rate, and keep the money in the US. Instead we berated Romney for having money in offshore accounts without stopping to understand he was doing it because sending your money overseas is the smartest legal thing you can do with it.

MilwaukeeMike said:

More fun facts (if you're really bored today)... here's google's income statement from 2011 from Yahoo Finance

[link]

Google's 2011 income before taxes (revenue - expenses etc) was 12,326,000,000 and they paid 2,589,000,000 in taxes. that's a tax rate of 21%.

However, if you take the 2 billion in taxes saved it would mean they moved 5.714 billion in revenue to bermuda. If you subtract 12.326 billion minus 5.714 billion you get 6.612 billion. That times 35% is 2.3142 billion and their income statement says they paid 2.589.

If they actually paid 35% tax and that turned out to be 2.589 billion, that means they paid tax on 7,397,142,000 in revenue. If that's true, they moved 12.326 - 7.397142 = 4.928857 billion to bermuda. That saved them 1.725 billion in taxes... not 2 billion. I think whoever wrote this story rounded up.

isn't math fun!

TJGeezer said:

It all adds up. "A billion here, a billion there, and pretty soon you're talking about real money." - Everett Dirksen

Ranger12 Ranger12 said:

If I am not mistaken, won't they pay taxes on that 2 billion when they want to bring it to the United States?

This seems to be a morally gray kind of area, tough to call. However, in their defense, I think we are lucky that Google has stuck around in the US seeing as companies have been relocating en masse thanks to high corporate tax rates and double taxation on overseas profits.

Guest said:

But it should change, according to the size of your company and not only putting a ridicuolous tax amout to pay...but hey neoliberalism is the way to go right?WRONG!!! and that wont change even if they rip that money from the government.

and the money that google declares im pretty sure its not their real income or profit...why you should show to the world the real figures?.....they should pay like the middle class people, like everyone and its not only for companies...its goes for the richiest people above the average guy

TomSEA TomSEA, TechSpot Chancellor, said:

Google isn't doing anything different than 10,000 other companies are. If the U.S. wants that tax money, then they need to re-write the tax codes so companies can't do this. But as soon as they do that, these companies (and all the jobs along with them) will move to countries where they won't have that tax burden.

It's one of those "don't bite the hand that feeds you" things.

1 person liked this | Ranger12 Ranger12 said:

and the money that google declares im pretty sure its not their real income or profit...why you should show to the world the real figures?

Because they are a publicly traded company which means they are required to register with the SEC and the SEC requires certain financial statements be made available. If you make up numbers willy-nilly they will drop the hammer on you and it will not be fun.

davislane1 davislane1 said:

An inconvenient truth: The Laffer curve always wins.

3 people like this | Ranger1st Ranger1st said:

America right now looks like the start of the fall of the Roman empire.. and no one is willing to sacrifice themselves to stop history from repeating it's self. Might as well open the gate to the Visogoths and be done with it.

1 person liked this | davislane1 davislane1 said:

America right now looks like the start of the fall of the Roman empire.. and no one is willing to sacrifice themselves to stop history from repeating it's self.

Completely agree. At this point, however, there is nothing that can be done about it. The problem isn't that there aren't people willing to make sacrifices, it's that there are too many people (1) not willing to make necessary sacrifices and (2) too many people who reject the classical idea of America. In reality, the problem is that people who are classically American are out numbered by those who want a more European-style system. It's a natural behavior of human civilization and cannot be overcome.

As this relates to taxes... The sooner Atlas shrugs the sooner the U.S. can press the reset button (and repeat the cycle), assuming the Goths... Err, the Chinese don't keep track of outstanding IOUs. Enslaving corporations, "the 1%", and the middle class to ever-increasing tax liabilities only prolongs and exacerbates the inevitable.

Gamesinner said:

Hey liberals, lower taxes and people will pay them.

Guest said:

Google is souless..

COE's should be held accountable for their company's agenda.

St1ckM4n St1ckM4n said:

I'm not American, nor did I study much in economics. I don't get it.

Is the tax paid depending on your liquid cash at end of financial year? I don't understand how you can make sales in the US, then move money offshore to end up not paying tax..

2 people like this | davislane1 davislane1 said:

I'm not American, nor did I study much in economics. I don't get it.

Is the tax paid depending on your liquid cash at end of financial year? I don't understand how you can make sales in the US, then move money offshore to end up not paying tax..

The U.S. tax code is over 6000 pages long. In short, if you have the knowledge or a decent tax accountant, you can do just about anything. This has less to to with basic finance and more to do with the many nuances of existing tax law.

Here, the revenue was attributed to Google's subsidiary in Bermuda, as explained in the linked report. As a result, the taxable funds show up on the balance sheet of the subsidiary instead of Google's, thus avoiding the income taxes. At least, that's how I would think it works, in theory...

Edit: Here's how it works. [link]

psycros psycros said:

Is that you Mitt?

Google was a very large Obama contributor, and todays news has a story that Google's CEO Eric Schmidt may join Obama's cabinet (possibly secretary of commerce or treasury). We normally think of republicans as being guilty of 'corporate welfare', but allowing these loopholes to exist isn't any different.

I don't expect any of this to change... our country didn't vote for the guy who wanted to close loop holes, reduce the corporate tax rate, and keep the money in the US. Instead we berated Romney for having money in offshore accounts without stopping to understand he was doing it because sending your money overseas is the smartest legal thing you can do with it.

A relatively small number of major "left coast" corporations contribute solely to Democrats. Everywhere else big companies hedge their bets, buying off key officials and lawmakers in both parties. For example, Obama would never have gotten elected without Wall Street betting on another bailout. The prez and the banksters exchange knowing winks as Obama lambastes the "1%" every day. The fix is <b>always</b> in.

1 person liked this | cmbjive said:

I'm not American, nor did I study much in economics. I don't get it.

Is the tax paid depending on your liquid cash at end of financial year? I don't understand how you can make sales in the US, then move money offshore to end up not paying tax..

Actually I think what is happening here is that Google is not repatriating any foreign income back into the states. The US is unique in that income can be taxed multiple times: It's taxed in the country it originated and then it is taxed again by the US once it is repatriated home. I bet that Google set up a shell company in Bermuda for tax purposes only so that it avoid not only foreign taxation but American taxation as well.

There are so many ironies in this story that it would take forever to list them all but I'll list this one: The next time you hear some uberrich Leftist talk about the "rich" needing to "pay their fair share" remember the actions of such stalwart Leftist companies like Google and their actions here. "Rich" does not apply to them but it applies to the "middle class" that Leftists claim to be representing and giving breaks to.

davislane1 davislane1 said:

For anyone interested in Google's take on the matter: [link]

Sad part is, 60 years ago this whole thing would have been a pretty good satire.

gingerbill said:

I hope these tax loopholes are closed and they have to pay every penny of tax they should be doing . Disgusting they can get away with it. Were I can I will avoid any company using these methods.

Of course the goverments are to blame for allowing it to happen , it is shameful.

pmshah said:

This only goes to show that the individuals assigned to write tax laws are either incredibly stupid or incredibly brilliant. Most likely the latter with some major palm greasing.

Here in India a corporation is liable to tax on ALL income, global as well as local. An individual is liable to global income if he has been in the the country for 180 days or more during a financial year. This is predefined for ALL, 1st April to 31st March. No exceptions are allowed. Even multinationals have to follow this, regard less of the parent companies financial year regime.

I have first hand knowledge of one German major, in electrical engineering field, using such tax shelter / haven to avoid paying tax. They bid for and win big projects. Then they subcontract it to their subsidiary registered in tax haven at a price just slightly below the winning bid. This subsidiary then further subcontracts the project to their Indian arm of the parent company at a price that would leave the Indian arm with very marginal profit. Ultimately the big fat profit accrues in the subsidiary located in the tax haven.

Another example is in IT department of software and hardware designing. Most major companies have development setup in India. (TI for example does almost all its DSP designing here in India.) Patents of these designs are however owned by the parent company. Income derived from licensing of these patents are collected by the parent country in tax haven countries, depriving India, as also the US, of legitimate tax.

As Gandhi once said "there is enough for everyone's need but not enough for even one man's greed"

Pan Wah said:

Google saved $2B in taxes in 2011 by sending revenue to Bermuda

Well played, I could do with a loan of their accountants.

Load all comments...

Add New Comment

TechSpot Members
Login or sign up for free,
it takes about 30 seconds.
You may also...
Get complete access to the TechSpot community. Join thousands of technology enthusiasts that contribute and share knowledge in our forum. Get a private inbox, upload your own photo gallery and more.