Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Unlike the U.S. (and UK, and Japan) who still have the ability to self fund their deficits via money printing, the EU members no longer has that ability. Hence, unlike the non shared currency countries, they actually need to find revenue via taxes. If you have been awake anytime the past decade you have seen the multitude of stories of multinationals – U.S. or otherwise – which have armies of accountants who now have no mission other than to find low tax strategies. In and of itself that is not a problem, but when combined with the fact the lobbyist arms of these organizations have incredible sway in CREATING the tax standards, it is a quite wicked circle that has been built.
Bloomberg has a story on Google (you can insert many other companies in its place) and how the Euro countries are starting to circle the wagons to try to extract some revenue from this company. As the stress of austerity hits these countries, and the inability to print their currency collude – we probably are going to see a lot more of this. You may remember Google from the infamous story about “Double Irish” and “Dutch Sandwich” tax strategies. So yes, some EU members themselves are guilty of creating the environment that other EU countries are now rebelling against. This is not much different from U.S. states creating tax strategies to lure business from other states – in the end the national revenue coffers drop one way or the other, but the bills for government services continue to rise. So it’s a big issue across the western world.
Via Bloomberg:
- Google Inc. (GOOG) avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show. By legally funneling profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google cut its overall tax rate almost in half. The amount moved to Bermuda is equivalent to about 80 percent of Google’s total pretax profit in 2011.
- Governments in France, the U.K.,Italy and Australia are probing Google’s tax avoidance as they seek to boost revenue during economic doldrums. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a press conference in Brussels.
- “The political awareness now being created in the U.K., 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.”
- The Internet search giant has avoided billions of dollars in income taxes around the world using a pair of tax shelter strategies known as the Double Irish and Dutch Sandwich, Bloomberg News reported in 2010. The tactics, permitted under tax law in the U.S. and elsewhere, move royalty payments from subsidiaries in Ireland and the Netherlands to a Bermuda unit headquartered in a local law firm.
- Last year, Google reported a tax rate of just 3.2 percent on the profit it said was earned overseas, even as most of its foreign sales were in European countries with corporate income tax rates ranging from 26 percent to 34 percent.
- The U.K., Google’s second-biggest market, was responsible for about 11 percent of its sales, or almost $4.1 billion last year, according to company filings. Google paid 6 million pounds ($9.6 million) in U.K. income taxes.
- Multinational companies cut their tax bills using “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens and expenses to higher-tax countries. In Google’s case, an Irish subsidiary collects revenues from ads sold in countries like the U.K. and France. That Irish unit in turn pays royalties to another Irish subsidiary, whose legal residence for tax purposes is in Bermuda. The pair of Irish units gives rise to the nickname “Double Irish.”
- To avoid an Irish withholding tax, Google channeled the payments to Bermuda through a subsidiary in the Netherlands — thus the “Dutch Sandwich” label. The Netherlands subsidiary has no employees.
- The Dutch unit’s payments to the Bermuda entity last year were up 81 percent to $9.8 billion from $5.4 billion in 2008. Google’s overseas sales have increased at about the same rate.
- Google’s overall effective tax rate dropped to 21 percent last year from about 28 percent in 2008.
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