The masterminds at Google are smart enough to invent the most popular search engine on earth, self-driving cars and those futuristic augmented-reality glasses. Apparently, they are also smart enough to scheme up an elaborate offshore Bermuda tax shelter that's kept billions of dollars away from tax collectors in the US, Britain and the Netherlands.
A bombshell report from Bloomberg details how last year, Google stashed $10 billion in profits in a Bermuda shell company—a company that exists on paper but provides no actual goods or services. What the shell company does provide is a corporate headquarters street address in Bermuda, the home of a zero percent corporate income tax. While the report also mentions Amazon, Facebook and Starbucks' involvement in similar offshore tax schemes, Google's exploitation of the offshore shell company maneuver is the most brazen of these.
Bloomberg reports that in 2011 Google stashed $10 billion offshore in Bermuda—a number that represents about 80 percent of their annual profit. As Ars Technica has reported, the money is all funneled into a shell company called Google Ireland Holdings, a "company" in Bermuda that has zero employees, makes no products whatsoever, but somehow made $10 billion last year.
These tax strategies have names like "Dutch Sandwich" and "Double Irish." While they may sound like names of adult films, they are actually complex tax avoidance structures. And they're perfectly legal, as multinational corporations tend have more clever accountants than the government regulatory bodies who tax them.
"The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe," tax accountant Richard Murphy told Reuters. "The political awareness now being created in the UK, and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut."
While the report focuses on Google's European tax avoidance, it probably won't take long until US regulators begin sniffing around Google's offshore accounts as well. After all, you've perhaps heard that US and European governments have a little something of a deficit problem going on at the moment.
Google argues—correctly—that the moves are completely legal, the revenue helps create jobs and prosperity and that Google Ireland Holdings is technically not a "shell company."
"We also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London," the company said in a statement to Bloomberg.
In 2011, Google paid an effective tax rate 3.2 percent on overseas profit. These profits were earned in countries whose actual tax rate is anywhere between 26 and 34 percent.