Google says it will no longer use the controversial “Double Irish, Dutch sandwich” tax scheme, a set of loopholes that have allowed it to pay a single-digit tax rate on profits made outside the US, according to Reuters.
In the widely used tax strategy, companies first transfer funds from an Irish subsidiary to a Dutch holding company, and then back to an Irish shell company in Bermuda, where no corporate income tax is required. The Bermuda company had rights to license Google intellectual property.
The strategy offered a legal way for Google to sidestep US income taxes and European withholding taxes on most of its overseas profits, relying chiefly on Ireland’s lenient tax laws. However, the strategy stoked controversy, and Ireland started phasing out the loophole in 2014, setting 2020 as the deadline to end the practice.
Meanwhile in the US, the Trump administration’s Tax Cuts and Jobs Act took effect in 2018, reducing the corporate tax rate there from 35 to 21 percent, and ending taxes on profits from overseas that had already been taxed elsewhere—giving companies less incentive to hold profits offshore.
In June, G20 ministers agreed to crack down on corporate tax loopholes. Their policy proposals suggest corporations will soon face tighter tax rules, with tech companies paying more, even in countries without a physical presence. Companies that move profits to offshore tax shelters will face a standard minimum tax rate across the G20.
Facebook and Uber also use Dutch subsidiaries to minimize taxes.
A Google spokesperson said in a statement:
“We’re now simplifying our corporate structure and will license our IP (intellectual property) from the US, not Bermuda.”
Google has argued that the practice was perfectly legal, and that it pays its tax debt in full.
“Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23%, with more than 80% of that tax due in the US.”
Reuters cited a 2018 Dutch tax filing indicating plans to end the practice, which the company later confirmed.
“A date of termination of the Company’s licensing activities has not yet been confirmed by senior leadership, however, management expects that this termination will take place as of 31 December 2019 or during 2020,” the company said in its filing.
The filing also showed that Google moved $24.5 billion through its Dutch holding company in 2018.
Photo: brionv [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)]