{{ searchResult.published_at | date:'d MMMM yyyy' }}

Loading ...
Loading ...

Enter a search term such as “mobile analytics” or browse our content using the filters above.

No_results

That’s not only a poor Scrabble score but we also couldn’t find any results matching “”.
Check your spelling or try broadening your search.

Logo_distressed

Sorry about this, there is a problem with our search at the moment.
Please try again later.

If you run a company in many parts of the world, one of your biggest concerns is not where you're going to find customers or how you're going to close sales. It's how you're going to grow your business given the tax burdens you face.

That's because, in many parts of the world, including in some of the most important consumer and business markets, corporate tax rates are pretty darn high.

But making lots and lots of money and dealing with taxes isn't such a big deal for some of the world's largest corporations. They have the resources to minimize the taxes they pay through complex corporate structures and accounting trickery.

One company that is guilty of using techniques that many would call 'shady' at best is Google. An article in Bloomberg BusinessWeek yesterday details how the search giant uses a variety of techniques to keep its overall corporate tax rate at a "super-low" 2.4%. That, of course, is substantially lower than the tax rates in the major countries where Google derives much of its revenue.

BusinessWeek's Jesse Drucker explains:

When a company in Europe, the Middle East, or Africa purchases a search ad through Google, it sends the money to Google Ireland. The Irish government taxes corporate profits at 12.5 percent, but Google mostly escapes that tax because its earnings don't stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008.

Irish law makes it difficult for Google to send the money directly to Bermuda without incurring a large tax hit, so the payment makes a brief detour through the Netherlands, since Ireland doesn't tax certain payments to companies in other European Union states. Once the money is in the Netherlands, Google can take advantage of generous Dutch tax laws. Its subsidiary there, Google Netherlands Holdings, is just a shell (it has no employees) and passes on about 99.8 percent of what it collects to Bermuda.

According to some observers, this strategy violates Google's 'do no evil' mantra. One accounting professor, Abraham J. Briloff, told BusinessWeek that Google is "flying a banner of doing no evil, and then they're perpetrating evil under our noses."

Evil? Hardly. Google's tax strategy is, first and foremost, entirely legal. Of course, what's legal might not be ethical. But is Google's tax strategy unethical? No.

In Briloff's view, Google's evil seems to stems from the fact that Google originated at Stanford University out of research funded by the National Science Foundation. But Briloff's notion that the United States citizenry "paid for" Google is disingenuous:

  • Despite its tax strategy, Google has paid billions of dollars in corporate taxes around the world.
  • Google's backers and early employees have paid significant tax on their windfalls.
  • Many Google investors of all shapes and sizes have paid capital gains tax on their Google investment profits.
  • Google searches and ads facilitate countless commercial transactions which invariably create tax revenue on multiple levels.
  • At the end of 2009, Google had just under 20,000 employees worldwide -- employees who pay various taxes (income, sales, etc.). 
  • The stock Stanford received in Google was worth hundreds of millions of dollars in 2005.

The reality is that Google has grown the pie. A company that didn't exist fifteen years ago in an industry that barely existed fifteen years ago has created immense wealth and thousands of jobs, and has directly and indirectly contributed billions of dollars to government coffers. Which begs the question: how much more should Google pay in tax? 25%? 50%? 100%?

That's obviously a tough question for the critics to answer, because there isn't a good answer. When you have governments with trillions of dollars of debt, you will never find enough money.

But there are easy answers to the important questions. Is Google's money better spent on product development and innovation? Or is it better spent financing debt-riddled and broken governments? Is Google's money better spent on hiring new employees who will help the company thrive? Or is it better spent on taxes that will, in part, help pay the salaries of bureaucrats? Is Google's money better spent subsidizing valuable services the company offers -- in many cases at no cost -- to individuals and businesses around the world? Or is it better spent subsidizing services governments provide?

The unfortunate thing about Google's tax situation is not that Google is engaging in such a convoluted tax strategy, but rather that to run a competitive company that can invest heavily in innovation, it practically has to. If there's an evil here, it's that smaller companies can't expand, innovate and create wealth in the same fashion. And that hurts all of us.

Patricio Robles

Published 22 October, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2405 more posts from this author

Comments (25)

Comment
No-profile-pic
Save or Cancel
Avatar-blank-50x50

James

I don't think any right minded person is really angry at Google or any corporate milking the system itself, as long as it's within the law.

I know personally what winds me up is more the thought that the "system" is limited and has so many loopholes that could in theory be relatively easily closed to avoid money draining out of the economy.

almost 6 years ago

Avatar-blank-50x50

Benoit Maison

Patricio,

I usually greatly enjoy your posts, but your argument is even more disingenuous than the one you take issue with.

Small businesses in aggregate also contribute tremendous wealth and jobs to the economy.  Yet they cannot take advantage of the same tax loopholes Google and many larger corporations do.  So they pay 30% and up in corporate taxes.

All your closing arguments would apply to smaller companies.  Sure, we'd all wish to pay less taxes.  The reality is that individuals and small business end up paying for the large corporations.

almost 6 years ago

Avatar-blank-50x50

Andrew

Google apologist #1

almost 6 years ago

Avatar-blank-50x50

http://www.hookus.com

i dont thing google is evil

almost 6 years ago

Avatar-blank-50x50

Evil

Not evil? pfft.... what planet are we living on? Goog is hiding behind their no evil mantra. hah.

almost 6 years ago

Avatar-blank-50x50

Andy

In honour of their tax evading ways, the next Google phone should be called the AlCaphone

almost 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

James,

Google is not "draining" money out of any economy. Unless, of course, you believe that Google's earnings don't naturally belong to Google and its shareholders.

Benoit,

I think you both get the point and miss it at the same time. The point is quite simple: there is nothing wrong with Google paying less in taxes -- it benefits just about everybody. What is tragic is the fact that only companies as large as Google have the resources necessary to minimize their taxes in this fashion. This, of course, puts smaller businesses at a disadvantage, although not for the reason you mention.

Everyone would be better off if all companies, regardless of size, were able to keep more of their earnings. There would be more money spent on hiring, expansion, R&D, and for governments, the actual tax base would grow.

almost 6 years ago

Avatar-blank-50x50

carouser

With all this fancy financing why even bother concern ourselves with whether rich, or whoever else, are getting tax cuts? http://scallywagandvagabond.com/2010/10/isnt-it-time-you-did-the-dutch-sandwich/

almost 6 years ago

Avatar-blank-50x50

Promotional Products

With the amount of corporations and individuals that are evading paying taxes. I think Google should be applauded for owning and paying what they owe like they are supposed to.

almost 6 years ago

Avatar-blank-50x50

Tim Thornton

Saying that as employees pay tax it is perfectly OK for corporations to minimise their tax is a totally false argument. Corporation have a moral responsibility to pay taxes in the countries they operate in, in exactly the same way as employees do. Unfortunately tax loopholes allow companies to legally avoid taxes, to the detriment of the countries where they operate - though this is generally only large corporates where the overheads of the costs for avoiding tax are small in comparison to the savings. Whether it is companies like Google avoiding taxes, or the various shenanigans of the banking sector, or whatever, this lack of corporate responsibility is not morally acceptable behaviour, and gives rise to things like the banking crisis. If Google wants to operate in a country, they should pay their taxes in that country.

almost 6 years ago

No-profile-pic

Anonymous

Since when did e-consultancy become a platform for neo-liberalist economic illiteracy? This really is a terrible post; I don't know where to start, or to stop.

Have you been on another planet for the last few months? Presumably you've missed the extensive news on Ireland's economic decline, due in no small part to its low-tax policies.

To take issue with a couple of your comments:

Or is it better spent subsidizing services governments provide?

No company on earth could exist without the support and framework government provides, it's absolutely impossible. No company exists in a vacuum. The government services subsidised by tax revenues provide police to protect staff, customers and offices, ambulances to collect ill or injured people, roads to let staff get to work, water, trains, electricity infrastructure....I could go on. Never mind that the services have to be paid for so if one company can get away with paying a tiny amount of tax, others (small businesses and individuals) have to subsidise the services. If anything, the business with the low-tax bill is being subsidised by everyone else. To be fair I think you agree with this, but your argument is that we should have access to the same techniques as larger companies, rather than larger companies being made to pay more tax.

but rather that to run a competitive company that can invest heavily in innovation, it practically has to.

This really takes the biscuit. Where on earth does the innovation come from? A magic tree? To suggest that a company practically has to pay low tax to be innovative is disingenuous nonsense. Innovation in any IP-related company comes from its staff and technology, staff that have been educated at school and university thanks to the massive support given to education by governments. Try innovating with poorly-educated staff, or ill staff, or staff who can't get to work.

If you don't like paying tax, don't run a business. Quit moaning.

I'd recommend your swinging by www.taxresearch.org.uk/blog/ - you might have your eyes opened.

almost 6 years ago

Avatar-blank-50x50

See no evil

Terrible article – so if you create an industry, sorry 'pie', that didn't exist before you get to decide when you have paid enough tax?

Not evil, just wrong.

almost 6 years ago

Avatar-blank-50x50

plr

Well researched and informative. I agree that Google has to use this payment logistic obstacle course to help itself rather then help a government who would probably waste the money anyway. Google for president!... lol?

almost 6 years ago

Corrie Davidson

Corrie Davidson, Social Media Manager at Sisarina, Inc

"If there's an evil here, it's that smaller companies can't expand, innovate and create wealth in the same fashion. And that hurts all of us."

Here! Here!

almost 6 years ago

Dave Thomas

Dave Thomas, MD at Click Vision Media ltd

An interesting post especially in the current climate! Is this big bank syndrome and should this sort of thing be happening to the big corporates out there, should they be allowed to do this? Dont get me wrong Google is a huge part of my business but why is it that these sort of loop holes are not so readily availiable to the smaller business out there? We carry on lining the pockets of the bankers and corporate businesses when is our turn for a break?!!

almost 6 years ago

No-profile-pic

Anonymous

I'm not going to bother writing an essay as I think you've done a good perfectly job of supporting my argument. The simple point is that the Irish tax model is fundamentally flawed and the fact that the economy is in such a terrible state simply proves that your argument is nonsense. It has failed, pure and simple. The primary problem is a wafer-thin tax base.

The tax take should have been based on a strong private sector generating strong tax receipts. Instead it has generated an environment where multi-billion dollar companies pay virtually no tax and when they leave let the Irish people to pick up the pieces. Property speculators borrowed vast sums from the likes of AIB and left the government to carry the can when the property bubble burst. Your espousing the low-tax approach simply shows up your lack of understanding and frankly lack of compassion towards the people in Ireland suffering unemployment and vastly reduced prospects. Now that's tragic.

Without wanting to sound lofty, this model of globalised capitalism has failed monumentally. Wealth doesn't flow down, rather it's concentrated at the top...low tax bases erode the host country...inequality rises and that harms us all.

almost 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Anonymous,

It did not create the sustainable private sector base the country needs to fund the public sector.

I suppose this just about sums everything up: you essentially believe that the job of the private sector is to fund the public sector. As I've alluded to before, citizens in a country should be able to determine what the role of government is. But needless to say, if the austerity measures in European countries are any indication, funding a social democracy, even where high taxes are present, is quite difficult. For better or worse, money doesn't grow on trees, and sadly there are often tragic results when everybody forgets that. Tax revenue is finite, and you can't spend more than you have for decades without consequence. Obviously, that leaves lots of tough decisions. Tough decisions that were clearly put off for far too long in many countries.

As the Rolling Stones sang, "You can't always get what you want." Which is why around the world in so many countries, many individuals are thinking about the relationships they have with their governments and asking, "What do I need?"

Back in the real world, Google employs over 2,000 people in Ireland. Apple has thousands of Irish employees, and is one of the largest employers in Munster. Microsoft employs over 1,000 people in Ireland. They are but a few technology companies employing large numbers of people in Ireland thanks to the fact that Ireland has made itself an attractive place to do business. Just because you believe these companies don't contribute enough -- "enough" apparently being defined as whatever it takes to fund the public sector irrespective of the sustainability of the public sector's size -- doesn't mean that they don't contribute to Ireland. They do, and I'm sure most individuals in Ireland would be disappointed if Google, Apple, Microsoft, et. al. abandoned Ireland and left thousands of people unemployed.

almost 6 years ago

No-profile-pic

Anonymous

Since we've both proven we can use Google perhaps it's time to draw this to a close?

By the way:

So taxes have no impact on how many employees you hire, what prices you charge customers and thus, your profitability? That's interesting. I'm sure many business owners would be interested in learning your secret.

I didn't say that at all. I said that the tax burden is the last thing I worry about.

Perhaps China was a poor example - I could of course pick from tens of other countries in the world that have a higher headline corporate tax rate than Ireland, but of course you'd know all about them. I note the 15% special rate is still higher than Ireland's rate.

I'm not necessarily saying there is causality, rather making a point about your inference that the tax rate in Ireland is "pretty darn high" - it's plainly not, regardless of the various subsidies on offer elsewhere in the world.

You can argue that corporations aren't paying their fair share in many countries, and that they should in many cases be paying more. But it's not going to happen.

I sincerely hope you're wrong about that. If not, when the corporate kleptocracy has bled us all dry and the cold nights are drawing in, I'll chuck another copy of Ayn Rand on the fire and think of you.

almost 6 years ago

No-profile-pic

Anonymous

Patricio - since we were talking about correlation and causation I thought you might be interested in this article that shows there is no correlation between higher marginal rates of income tax in the US and slowing GDP. Fancy that! You might like some of the comments too. One person says:

There's nothing more pathetic than wealthy people complaining that the poor don't pay enough taxes. How do you tax something that isn't there? 

They could almost be referring to you when you said "the 770,000 individuals earning less than €17,000 contribute almost nothing -- €20m -- to the tax base and a median earner (€25,000) pays on average just 4% of his or her income in tax."

Couldn't resist!

http://www.slate.com/id/2245781/

TTFN

almost 6 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Anonymous,

I never argued that higher marginal tax rates have an impact on GDP. Given that governments can spend money (much of it borrowed or printed) and that this spending is reflected in GDP figures, I'd actually argue that GDP is a fairly useless metric, at least in terms of quantifying meaningful "economic growth" or lackthereof. It's what's growing or not growing that tells you the true health of a nation's economy.

On to your other point: you can't tax something that isn't there. Just as you can't perpetually provide costly services and programs to large numbers of individuals who are unable to pay for them. Whether the 770,000 people in Ireland making €17,000/year or less can afford to contribute, on average, more than €25/year in income tax to the state is a rhetorical question I'll let you mull on over your fire. :)

almost 6 years ago

Alec Kinnear

Alec Kinnear, Creative Director at Foliovision

So Patricio, when do you start the gas ovens and prison camps to clean up those "individuals who are unable to pay for costly services and programs".

I forgot: your approach, just let them to starve to death. Anglo-Irish Potato famine style.

And who is supposed to pay for the police and military to herd these starving millions?

Perhaps it might be a better idea to offer better education and more opportunity so that some of these untermenschen one day will be able to pay taxes as wealthy contributors to the economy?

No - much more fun to starve, them to death, eh Patty?

almost 6 years ago

Alec Kinnear

Alec Kinnear, Creative Director at Foliovision

Since some people managed to pay no tax and because at one point marginal taxes in Britain were in the nineties, that is an argument that it's okay henceforward to never pay taxes?

What needs to be done soon is to make these schemes illegal and those who practice them permanent exiles. The companies who insist will also no longer be allowed to operate at all. Some sharp legislative measures will cool the ardour of you free market types to stiff the system which fed you, educated you and even now protects you.

White collar crime is still crime, Patricio. You are little different from the guy stealing car radios just because he can.

almost 6 years ago

Avatar-blank-50x50

Jeff Gerling

It's too bad that this article isn't more focused on how evil the government is for taxing coorporate taxes in the first place.  Google is paying more than it's fair share of taxes, but to what end? So government can waste the money?  I love these evil people wanting to sock it to the rich, yet their time will come when all the rich are gone and our greedy government needs to feed on them.  It's easy to cheer from the crowd when the lions are eating the Christians my friends, but what exactly happens when there are no more Christians left?  Yes, the lions are coming for you too my friend. 

almost 6 years ago

Avatar-blank-50x50

Kris

I agree with your post Mr. Patricio Robles because managing a company is not easy, there's a lot of obligation and responsibility of being a manager.

over 5 years ago

Avatar-blank-50x50

Post Free Ads

It's too bad that this article isn't more focused on how evil the government is for taxing coorporate taxes in the first place. Google is paying more than it's fair share of taxes

about 5 years ago

Comment
No-profile-pic
Save or Cancel
Daily_pulse_signup_wide

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Daily Pulse newsletter. Each weekday, you ll receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.