An earlier Hacker News discussion on this article can be found here: http://news.ycombinator.com/item?id=1815457
The Tax Haven That's Saving Google Billions
11–20 of 62 posts
Re: The Tax Haven That's Saving Google Billions
#12My knowledge of international corporate tax law is practically nil, but if I understand this correctly, the money sitting in Bermuda is still subject to taxation when it gets brought back into the US; so Google isn't avoiding taxes, but is rather postponing taxes by doing this.
I suppose the bermudan company can make investments in america or even give out a loan to google if needed
Re: The Tax Haven That's Saving Google Billions
#13These tax-avoidance schemes have great names - the "Double Irish" Arrangement and the "Dutch Sandwich": http://en.wikipedia.org/wiki/Double_Irish_Arrangement
Re: The Tax Haven That's Saving Google Billions
#14I wrote an article on this transaction that I had posted to the HN community that breaks down a number of the points and explains how it works.
http://cameronkeng.com/hn-how-do-i-pull-a-google/
A few things you should consider about international taxation is that it's complicated and only works because they have the infrastructure to sustain it.
Disclaimer, I'm not saying what they're doing is right or wrong, but simply placing it into context
1. Individuals have a hard time using international tax law similarly because of CFC rules (closely-held foreign corps). If anyone owns more than 10% of a foreign company they must include or report the income as part of their current earnings.
2. The effective tax rate is only "2.something percent" of income the income google earned outside the US.
3. To have an APA (Advanced Pricing Agreement) with the IRS is incredibly expensive and time consuming because it's like getting audited in advance and then justifying it before you ever do anything.
4. You need to pay at a minimum a big 4 accounting firm 10 million to start a project of this complexity over a number of countries.
5. The dutch companies are simply a "conduit" to allow the money to ultimately reach the Caribbean island tax havens because they have no income tax and simply charge a flat tax of 15k.
6. On cperciva's note, this tax plan could be considered "post-poning income recognition" but in reality it effectively is never repatriated or brought back into the country because google is such a multinational company. They could use the money for their international business very easily or they could use their foreign cash reserves to purchase an asset in a foreign country and still retain the ownership by the US main company.
I could go on for a while but this is just a the tip of the iceberg.
I've practice this area of taxation before as a CPA so I could give you a number of other examples.
Re: The Tax Haven That's Saving Google Billions
#15Trying to tax multi-national corporations is futile and encourages huge amounts of rent-seeking. We should just go to a low flat corporate tax rate (say 10%). To offset that we should stop taxing capital gains at a lower rate and crack down on tax avoidance by high-income individual taxpayers in the US.
A corporation can run their activities from Bermuda or wherever they want, but corporate executives and shareholders aren't going to move to a shitty low-tax jurisdiction if we up their rates.
Re: The Tax Haven That's Saving Google Billions
#16My knowledge of international corporate tax law is practically nil, but if I understand this correctly, the money sitting in Bermuda is still subject to taxation when it gets brought back into the US; so Google isn't avoiding taxes, but is rather postponing taxes by doing this.
Except for the fact that historically this sort of maneuver is used to defer repatriating money earned abroad until such time as the conditions are favorable to do so. For example, http://articles.baltimoresun.com/2011-11-02/news/bs-ed-tax-r...
This article discusses how in 2004 there was a tax holiday for corporations to 'repatriate' profits stashed over seas. Presently corporations are lobbying Congress for another such one time tax holiday. Under these special one time deals the money being brought in is generally taxed at a ridiculously low rate. In 2004 it was 5% meaning Google's effective tax rate once the money arrives back in Mountain View is 7.5% still very very low.
Re: The Tax Haven That's Saving Google Billions
#17I wrote an article on this transaction that I had posted to the HN community that breaks down a number of the points and explains how it works. http://cameronkeng.com/hn-how-do-i-pull-a-google/ A few things you should consider about international taxation is that it's complicated and only works because they have the infrastructure to sustain it. Disclaimer, I'm not saying what they're doing is right or wrong, but sim…
Does this get any easier if you do the original incorporation offshore?
Re: The Tax Haven That's Saving Google Billions
#18This is an article from 2010 that's already been submitted to HN in the past: http://news.ycombinator.com/item?id=1815457
Personally, I find the sub-headline misleading. The subhead reads "Google uses a complicated structure to send most of its overseas profits to tax havens, keeping its corporate rate at a super-low 2.4 percent." But I believe that number refers only to Google's overseas tax rate. This more recent article http://news.yahoo.com/googles-tax-rate-still-seems-very-low-... says that Google's overall tax rate was 22.2% in 2009.
Re: The Tax Haven That's Saving Google Billions
#19Trying to tax multi-national corporations is futile and encourages huge amounts of rent-seeking. We should just go to a low flat corporate tax rate (say 10%). To offset that we should stop taxing capital gains at a lower rate and crack down on tax avoidance by high-income individual taxpayers in the US. A corporation can run their activities from Bermuda or wherever they want, but corporate executives and shareholder…
"To offset that we should stop taxing capital gains at a lower rate"
I think this is not a bad idea, in fact, corporate taxes could be significantly lowered and capital gains/dividends could make up for it I believe. If not the money would usually go to reinvestment or some other sort of purpose. I think that taxing capital gains as if it was regular income would also be a fairer way to tax since a significant portion of high net worth individuals make most of their money from capital gain and pay less % taxes than upper middle class individuals.
Re: The Tax Haven That's Saving Google Billions
#20Trying to tax multi-national corporations is futile and encourages huge amounts of rent-seeking. We should just go to a low flat corporate tax rate (say 10%). To offset that we should stop taxing capital gains at a lower rate and crack down on tax avoidance by high-income individual taxpayers in the US. A corporation can run their activities from Bermuda or wherever they want, but corporate executives and shareholder…
It's "futile"? Really? Is that just shorthand for saying that you oppose trying hard enough to do it successfully?
I don't think it's futile at all. I think we lack the national will to do it, largely and obviously because of the folks who are in control of the relevant decisions.
I'd be more sympathetic to your argument (and just fyi, I am not entirely unsympathetic as it is) if I had some confidence that adopting a 10% flat tax would actually result in corporations paying that amount.
Taxing capital gains at a LOWER rate? Are you serious? Reagan/Bush/Bush trashed those rates to such an extent that it seems laughable to advocate lowering them any further. They're non-existent.