Google managed to avoid paying about $2 billion in global income taxes last year by moving the vast majority of its pre-tax profit to a shell company in Bermuda, Bloomberg reported Monday.
The search giant shifted some $9.8 billion in revenues — about 80% of its total pre-tax profit — to a tax haven in Bermuda, roughly twice the amount Google placed in Bermuda three years earlier, according to the report, which is based on company filings.
By sheltering money in Bermuda, Google managed to cut its overall effective tax rate to 21% in 2011, down from 28% in 2008. Google’s tax rate on the profit it earned overseas was just 3.2%.
This strategy may be controversial, but it’s certainly not illegal. Under U.S. law, businesses are allowed to move payments from subsidiaries in countries like Ireland and the Netherlands to Bermuda, where it won’t be taxed. According to Bloomberg, these tactics are apparently known as the Double Irish and Dutch Sandwich.
Apple, another top tech company, is said to have pioneered this tax trick to shave billions of dollars off its tax bill each year. An investigation by the New York Times a few months ago found that one-third of Apple’s pre-tax revenue in 2004 was said to come from Ireland and the company has set up a tax haven in the British Virgin islands.
Microsoft, HP and other big tech companies have all reportedly avoided paying some portion of their taxes by shifting money to various offshore accounts as well.
This is a clear cut case of tax avoidance. The difference between tax evasion and tax avoidance is that the former is a crime but the latter is perfectly legal. Rich people move their money around to where taxes are lowest. If you can legally save a billion or two on your taxes for yourself and your fellow shareholders, why not?
That is the problem with all the “tax the rich” arguments. When taxes get to high in one place rich people can afford to move somewhere else. That’s what the Laffer curve really shows.
Does that mean that rich people shouldn’t have to pay taxes? Hell no! Mitt Romney paid millions of dollars in taxes last year. But there is a limit to how much milk you can get by beating the cow.
BTW – Last time I checked, the guys who run Google are big time Obama supporters.