IRS audits Google for funneling profits to Ireland

Savings of $1bn per year from 'Double Irish' loophole


The US Internal Revenue Service is auditing strategies that Google uses to cut its tax bill by about $1 billion a year by funneling profit into subsidiaries located in territories with low or non-existent rates, according to a published report citing unnamed officials.

The agency is “bringing more than typical scrutiny” to techniques known as the “Double Irish” and “Dutch Sandwich,” which move profits through units in Ireland, the Netherlands, and Bermuda, Bloomberg News reported on Thursday. Last year, Bloomberg reported that the practice had saved Google $3.1 billion in just three years.

In 2009 alone, a Google subsidiary located in Bermuda, where there's no corporate income tax, collected about $6.1 billion in royalties from a separate Google unit located in the Netherlands, Bloomberg reported. By transferring profits out of the US and other territories where rates are high, Google is able to drastically lower its costs. On Thursday, Google reported an effective tax rate of about 19 percent for third quarter, less than half the average combined US and state statutory rate of 39.2.

Google is by no means alone in pursuing the strategy. US companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries that aren't subject to income taxes. If the earnings were transferred to the US, they would face a 35-percent corporate rate. Microsoft, Apple, and Cisco Systems use similar vehicles to avoid federal income taxes, but it's not clear they do so with the same spectacular success.

In 2006, the IRS approved much of Google's tax arrangement when it signed off on a 2003 intracompany transaction that moved foreign rights to its search technology to Google Ireland Holdings, an Irish subsidiary managed in Bermuda. The deal allowed future profit derived from those copyrights to be recognized in foreign subsidiaries rather than in the US, where the underlying technology was developed, Bloomberg said.

But the IRS assent covered rights Google held as of 2003 and doesn't cover technology the company acquired since then. Since that time, Google has made at least three major acquisitions that the IRS is now examining, Bloomberg said. They include the $1.65 billion purchase of YouTube in 2006, $3.2 billion for email security service Postini in 2007, and $3.2 billion for DoubleClick in 2008.

A Google spokesman told Bloomberg: “This is a routine inquiry.” He didn't answer a Bloomberg reporter's question about whether the company intended to assign patents acquired in its $12.5 billion purchase of Motorola Mobility to foreign subsidiaries. ®

Similar topics


Other stories you might like

  • AI tool finds hundreds of genes related to human motor neuron disease

    Breakthrough could lead to development of drugs to target illness

    A machine-learning algorithm has helped scientists find 690 human genes associated with a higher risk of developing motor neuron disease, according to research published in Cell this week.

    Neuronal cells in the central nervous system and brain break down and die in people with motor neuron disease, like amyotrophic lateral sclerosis (ALS) more commonly known as Lou Gehrig's disease, named after the baseball player who developed it. They lose control over their bodies, and as the disease progresses patients become completely paralyzed. There is currently no verified cure for ALS.

    Motor neuron disease typically affects people in old age and its causes are unknown. Johnathan Cooper-Knock, a clinical lecturer at the University of Sheffield in England and leader of Project MinE, an ambitious effort to perform whole genome sequencing of ALS, believes that understanding how genes affect cellular function could help scientists develop new drugs to treat the disease.

    Continue reading
  • Need to prioritize security bug patches? Don't forget to scan Twitter as well as use CVSS scores

    Exploit, vulnerability discussion online can offer useful signals

    Organizations looking to minimize exposure to exploitable software should scan Twitter for mentions of security bugs as well as use the Common Vulnerability Scoring System or CVSS, Kenna Security argues.

    Better still is prioritizing the repair of vulnerabilities for which exploit code is available, if that information is known.

    CVSS is a framework for rating the severity of software vulnerabilities (identified using CVE, or Common Vulnerability Enumeration, numbers), on a scale from 1 (least severe) to 10 (most severe). It's overseen by First.org, a US-based, non-profit computer security organization.

    Continue reading
  • Sniff those Ukrainian emails a little more carefully, advises Uncle Sam in wake of Belarusian digital vandalism

    NotPetya started over there, don't forget

    US companies should be on the lookout for security nasties from Ukrainian partners following the digital graffiti and malware attack launched against Ukraine by Belarus, the CISA has warned.

    In a statement issued on Tuesday, the Cybersecurity and Infrastructure Security Agency said it "strongly urges leaders and network defenders to be on alert for malicious cyber activity," having issued a checklist [PDF] of recommended actions to take.

    "If working with Ukrainian organizations, take extra care to monitor, inspect, and isolate traffic from those organizations; closely review access controls for that traffic," added CISA, which also advised reviewing backups and disaster recovery drills.

    Continue reading

Biting the hand that feeds IT © 1998–2022