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Google uses Bermuda (a British overseas territory) to avoid tax liability in the EU “Google has paid €8.8 billion in fees to Bermuda,” S&D group MEP Peter Simo

Google uses Bermuda (a British overseas territory) to avoid tax liability in the EU “Google has paid €8.8 billion in fees to Bermuda,” S&D group MEP Peter Simon complained. [1] The irony being that the current president of the European Commission, Jean-Claude Juncker, was Prime Minister of Luxembourg when his administration was organising the low tax environment. [2] [3] And now the EU claims that "the Anti Tax Avoidance Package is part of the Commission's ambitious agenda for fairer, simpler and more effective corporate taxation in the EU." [4] [1] http://www.euractiv.com/section/public-affairs/news/google-facebook-and-amazon-forced-to-face-meps-tax-questions/ http://www.euractiv.com/section/public-affairs/news/google-f... [2] https://en.wikipedia.org/wiki/Jean-Claude_Juncker https://en.wikipedia.org/wiki/Jean-Claude_Juncker [3] https://en.wikipedia.org/wiki/Luxembourg_Leaks https://en.wikipedia.org/wiki/Luxembourg_Leaks [4] http://ec.europa.eu/taxation_customs/taxation/company_tax/anti_tax_avoidance/index_en.htm http://ec.europa.eu/taxation_customs/taxation/company_tax/an...

vmateixeira 10y ago
Nice research, thanks for sharing!
Kristine1975 10y ago
If Google paid €8.8b in fees to avoid paying taxes, just how much taxes are we talking about? Also seconding vmateixeira: Thanks for your research!
- germanier 10y ago
  Well, they paid these fees to their own company so nothing was lost for them.
- spriggan3 10y ago
  So basically Google inc (in a tax haven) makes Google Spain pay for the use of the Google brand 8 billions. Google Spain never makes a profit since it needs to pay a fee for using the brand, thus never have to pay taxes on their huge profit, that's how they get away with it. Apple does it too, with Apple Ireland in Europe. Then Google US and Apple US just have to wait for a tax amnesty in the US in order to bring back oversea un-taxed profits.
  - relearn 10y ago
    >So basically Google inc (in a tax haven) makes Google Spain pay for the use of the Google brand 8 billions. Google Spain never makes a profit since it needs to pay a fee for using the brand, thus never have to pay taxes on their huge profit, that's how they get away with it. I've seen you post this several times. Do you have a source that I could read up on this?
    - leonhandreke 10y ago
      It's a bit more complicated than that, but yes, it seems that that's how it works: https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
  - redorb 10y ago
    They most likely would be less taxed than un-taxed. My old boss used to say 'if you went looking and paid every tax you found that you might owe no one would be in business'. Of course there should be some middle ground.
- slv77 10y ago
  Typically the firm creates a subsidiary that holds its intellectual property like patents, software and trademarks in a tax haven like Bermuda. Since there is no operations or R&D in those locations they may have little or no employees. The subsidiaries in the high tax jurisdictions then license the IP from the Bermuda entity which siphons off profits. Without the IP cross licensing deals the French subsidiary would have access to Google's IP at no cost which would inflate their profits enormously. To offset this Google would need to build R&D centers in each market. While either scenario would likely benefit France it wouldn't likely be beneficial to Google.
  - charlesdm 10y ago
    But how does not licensing IP make sense? That creates a whole set of new problems, i.e. why should affiliated parties allow IP to be licensed for free, where the same expenses would be tax deductible for unaffiliated parties?
    - pyrale 10y ago
      It makes sense to license the IP. Pushing the IP fees to the point that the subsidiary doesn't make money, not so much. Likewise, it makes sense to loan money to your subsidiaries so they can grow. But making large, unnecessary loans of money from tax havens to sink your subsidiary's profitability doesn't sound honest.
    - spangry 10y ago
      You've actually hit on the basic 'integrity rule' for these kinds of arrangements (at least in Australia): foreign related entities must charge on-shore related entities using 'arms-length' pricing (the 'transfer pricing' rule). Same goes for the interest rates on loans made by foreign related entities, because the interest is deductible against gross profits (the 'thin capitalisation' rule). I've simplified somewhat, but this is the basic thrust of the law. Companies will end up in court when their definition of an arms-length price/interest rate is significantly higher than what the national tax authority considers to be reasonable. However, having worked in the offshore tax-haven unit in the Australia Taxation Office (I even went on a tax raid once), and then subsequently worked in tax policy for a few years, I don't think things clear cut with google (and others). I'm not even sure that transfer pricing and thin cap are particularly relevant issues. In general, I think this issue is much bigger than a simple case of companies crossing the line on transfer pricing and thin cap rules. 'Tech capital' is extremely mobile; it can literally be moved from one country to another in a matter of hours. This creates strong incentives for countries to undercut each others' corporate tax rates to attract that capital. Tax havens (and Ireland) are extreme examples of this. The only way to extract any meaningful amount of tax from tech multinationals is through some kind of international agreement on minimum corporate tax rates (one that is ratified by countries representing a large enough proportion of the world economy). You'd also have to apply trade sanctions to any country, signatory or not, that goes below this minimum threshold. In short, it's unlikely google and others will have to pay their 'fair share' of tax any time soon. This might sound defeatist, but I think countries will need to shift their tax burden on to less mobile (and therefore, more economically efficient) bases, such as domestic consumption and land.
alkonaut 10y ago
How can this still be possible? Shouldn't all tax legislation be such that if you break the spirit of it by having internal transfers (royalties, fees, interest) to a low-tax area, then you are still taxed based on the business that you had in the country in question, and not based on the net sum (i.e. zero). The current state of tax law is that a billion dollar company pays almost no taxes but a million dollar company pays a lot. That can't be good for anyone (apart from the $1B company). Are countries, simply put, afraid to put an end to tax schemes like this, because it would just mean that Ikea or Google would pack up and leave?
- zo1 10y ago
  "Are countries, simply put, afraid to put an end to tax schemes like this, because it would just mean that Ikea or Google would pack up and leave?" In an "odd" application of market-competition, that is precisely what happened. Countries where Google generally did business wanted to tax Google at some X. Then along came Ireland, or Google found Ireland, and saw that they could do some legal paperwork and pay Ireland's tax rate of X-Y instead of X in the "source" countries. The point I'm making is that Google did pack up and leave, and it will happen again unless really drastic actions are taken against them. I don't think anyone wants to do that, at this point. You either bully all countries from allowing loop holes such as this, even though they don't want to. Or you disallow Google from operating in your country if they don't pay taxes on the profit from "sales" you deem occurred in your country. Small countries that want/need that tax revenue from Google, even if it is X-Y, won't like it if you compel them into complying and causing Google to "pack up and leave". It also puts the "bullying" nature of whatever international body is tasked with enforcing this into light.
  - alkonaut 10y ago
    Seems like a reasonable thing to decide at international level. We have already more or less forced (or come to an agreement with) Switzerland to not hide "dark money". Getting some stronger wording in the tax legislation on EU level should be doable, but of course the Netherlands would squirm a bit.
  - ForHackernews 10y ago
merb 10y ago
Exactly the same man makes speeches that these agreements are bad. And that tax ways needs to be public. I only have german articles but this guy is really really akward.
- kuschku 10y ago
  Well, he’s a career politician. Other career politicians you should know: David Cameron, Boris Johnson, Hillary Clinton, Barack Obama, Angela Merkel, etc. They do not have much of an own opinion they want to push – often they couldn’t care much, as both solutions would be okay for them. So they vote for whatever polls or lobbies say is popular or profitable. This isn’t necessarily bad – Merkel has been called at times the "walking infratest-dimap poll", specifically because she always pushed through whatever the people considered important according to polls. Kinda democracy, I guess. But, in general, it’s nothing awkward, or special – in fact, it’s the way most of politics has been in the past decades. And considering the alternatives of politicians that are still idealistic, which at the moment are only right-populists like Trump, Farage, Petry, Le Pen, I’m wondering if, for now, career politicians might not be the better solution.
- deleted 10y ago
  [deleted]

vmateixeira 10y ago

Nice research, thanks for sharing!

Kristine1975 10y ago

If Google paid €8.8b in fees to avoid paying taxes, just how much taxes are we talking about? Also seconding vmateixeira: Thanks for your research!

germanier 10y ago
Well, they paid these fees to their own company so nothing was lost for them.
spriggan3 10y ago
So basically Google inc (in a tax haven) makes Google Spain pay for the use of the Google brand 8 billions. Google Spain never makes a profit since it needs to pay a fee for using the brand, thus never have to pay taxes on their huge profit, that's how they get away with it. Apple does it too, with Apple Ireland in Europe. Then Google US and Apple US just have to wait for a tax amnesty in the US in order to bring back oversea un-taxed profits.
- relearn 10y ago
  >So basically Google inc (in a tax haven) makes Google Spain pay for the use of the Google brand 8 billions. Google Spain never makes a profit since it needs to pay a fee for using the brand, thus never have to pay taxes on their huge profit, that's how they get away with it. I've seen you post this several times. Do you have a source that I could read up on this?
  - leonhandreke 10y ago
    It's a bit more complicated than that, but yes, it seems that that's how it works: https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
- redorb 10y ago
  They most likely would be less taxed than un-taxed. My old boss used to say 'if you went looking and paid every tax you found that you might owe no one would be in business'. Of course there should be some middle ground.
slv77 10y ago
Typically the firm creates a subsidiary that holds its intellectual property like patents, software and trademarks in a tax haven like Bermuda. Since there is no operations or R&D in those locations they may have little or no employees. The subsidiaries in the high tax jurisdictions then license the IP from the Bermuda entity which siphons off profits. Without the IP cross licensing deals the French subsidiary would have access to Google's IP at no cost which would inflate their profits enormously. To offset this Google would need to build R&D centers in each market. While either scenario would likely benefit France it wouldn't likely be beneficial to Google.
- charlesdm 10y ago
  But how does not licensing IP make sense? That creates a whole set of new problems, i.e. why should affiliated parties allow IP to be licensed for free, where the same expenses would be tax deductible for unaffiliated parties?
  - pyrale 10y ago
    It makes sense to license the IP. Pushing the IP fees to the point that the subsidiary doesn't make money, not so much. Likewise, it makes sense to loan money to your subsidiaries so they can grow. But making large, unnecessary loans of money from tax havens to sink your subsidiary's profitability doesn't sound honest.
  - spangry 10y ago
    You've actually hit on the basic 'integrity rule' for these kinds of arrangements (at least in Australia): foreign related entities must charge on-shore related entities using 'arms-length' pricing (the 'transfer pricing' rule). Same goes for the interest rates on loans made by foreign related entities, because the interest is deductible against gross profits (the 'thin capitalisation' rule). I've simplified somewhat, but this is the basic thrust of the law. Companies will end up in court when their definition of an arms-length price/interest rate is significantly higher than what the national tax authority considers to be reasonable. However, having worked in the offshore tax-haven unit in the Australia Taxation Office (I even went on a tax raid once), and then subsequently worked in tax policy for a few years, I don't think things clear cut with google (and others). I'm not even sure that transfer pricing and thin cap are particularly relevant issues. In general, I think this issue is much bigger than a simple case of companies crossing the line on transfer pricing and thin cap rules. 'Tech capital' is extremely mobile; it can literally be moved from one country to another in a matter of hours. This creates strong incentives for countries to undercut each others' corporate tax rates to attract that capital. Tax havens (and Ireland) are extreme examples of this. The only way to extract any meaningful amount of tax from tech multinationals is through some kind of international agreement on minimum corporate tax rates (one that is ratified by countries representing a large enough proportion of the world economy). You'd also have to apply trade sanctions to any country, signatory or not, that goes below this minimum threshold. In short, it's unlikely google and others will have to pay their 'fair share' of tax any time soon. This might sound defeatist, but I think countries will need to shift their tax burden on to less mobile (and therefore, more economically efficient) bases, such as domestic consumption and land.

alkonaut 10y ago

How can this still be possible? Shouldn't all tax legislation be such that if you break the spirit of it by having internal transfers (royalties, fees, interest) to a low-tax area, then you are still taxed based on the business that you had in the country in question, and not based on the net sum (i.e. zero). The current state of tax law is that a billion dollar company pays almost no taxes but a million dollar company pays a lot. That can't be good for anyone (apart from the $1B company). Are countries, simply put, afraid to put an end to tax schemes like this, because it would just mean that Ikea or Google would pack up and leave?

zo1 10y ago
"Are countries, simply put, afraid to put an end to tax schemes like this, because it would just mean that Ikea or Google would pack up and leave?" In an "odd" application of market-competition, that is precisely what happened. Countries where Google generally did business wanted to tax Google at some X. Then along came Ireland, or Google found Ireland, and saw that they could do some legal paperwork and pay Ireland's tax rate of X-Y instead of X in the "source" countries. The point I'm making is that Google did pack up and leave, and it will happen again unless really drastic actions are taken against them. I don't think anyone wants to do that, at this point. You either bully all countries from allowing loop holes such as this, even though they don't want to. Or you disallow Google from operating in your country if they don't pay taxes on the profit from "sales" you deem occurred in your country. Small countries that want/need that tax revenue from Google, even if it is X-Y, won't like it if you compel them into complying and causing Google to "pack up and leave". It also puts the "bullying" nature of whatever international body is tasked with enforcing this into light.
- alkonaut 10y ago
  Seems like a reasonable thing to decide at international level. We have already more or less forced (or come to an agreement with) Switzerland to not hide "dark money". Getting some stronger wording in the tax legislation on EU level should be doable, but of course the Netherlands would squirm a bit.
- ForHackernews 10y ago

merb 10y ago

Exactly the same man makes speeches that these agreements are bad. And that tax ways needs to be public. I only have german articles but this guy is really really akward.

kuschku 10y ago
Well, he’s a career politician. Other career politicians you should know: David Cameron, Boris Johnson, Hillary Clinton, Barack Obama, Angela Merkel, etc. They do not have much of an own opinion they want to push – often they couldn’t care much, as both solutions would be okay for them. So they vote for whatever polls or lobbies say is popular or profitable. This isn’t necessarily bad – Merkel has been called at times the "walking infratest-dimap poll", specifically because she always pushed through whatever the people considered important according to polls. Kinda democracy, I guess. But, in general, it’s nothing awkward, or special – in fact, it’s the way most of politics has been in the past decades. And considering the alternatives of politicians that are still idealistic, which at the moment are only right-populists like Trump, Farage, Petry, Le Pen, I’m wondering if, for now, career politicians might not be the better solution.
deleted 10y ago
[deleted]