How Google Avoided Paying $60 Billion In Taxes

bonch writes "Google only pays a 2.4% tax rate using money-funneling techniques known as the 'Double Irish' and the 'Dutch Sandwich,' even though the US corporate income tax is 35%. By using Irish loopholes, money is transferred legally between subsidiaries and ends up in island sanctuaries that have no income tax, giving Google the lowest tax rate amongst its technology peers. Facebook is planning to use the same strategy."

Comments

Headline Is So Very Wrong

[eldavojohn]

How Google Avoided Paying $60 Billion In Taxes

Yeah, unless you read the article that says:

Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.

That's $60 billion total per year. Not just from Google but from every American business using these tax loopholes (Microsoft and Facebook included). The article clarifies:

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Emphasis mine. So you can see that it's on average a billion a year that Google saves doing this. Not $60 billion. Do I still feel like they're shafting me? Yes. But not 15% of their stock market worth. That's just unimaginable. Here's a bigger survey of companies using these loopholes with more details.

Re:Headline Is So Very Wrong

[Raenex]

Now, if Google had an army of lobbyists in Washington pushing to extend those loopholes or create more of them, that would be evil.

How about secret agreements with the IRS? From the article:

"After three years of negotiations, Google received approval from the IRS in 2006 for its transfer pricing arrangement, according to filings with the Securities and Exchange Commission.

The IRS gave its consent in a secret pact known as an advanced pricing agreement. Google wouldn't discuss the price set under the arrangement, which licensed the rights to its search and advertising technology and other intangible property for Europe, the Middle East and Africa to a unit called Google Ireland Holdings, according to a person familiar with the matter."

Re:Headline Is So Very Wrong

[LehiNephi]

I can't speak for corporate income tax, but for personal income tax, the deal is this: you get a tax credit for taxes paid overseas. If you still owe US taxes after that, then you pay US taxes. If the foreign tax credit eliminates your US tax bill, then you don't pay any US income tax. The problem is that it effectively ensures that you get taxed at the highest rate applicable.

Re:Headline Is So Very Wrong

[ptbarnett]

Only poor people pay taxes.

Oh, BS. This meme is stupid, and can be disproved in moments with the US Government's own publications:

http://cbo.gov/publications/collections/tax/2010/all_tables.pdf

That's the Congressional Budget Office's compilation of effective tax rates and percentage of taxes paid by the various income quintiles in the US from 1979 to 2007. They also provide numbers for the top 10%, top 5%, and top 1%.

The effective individual income tax rates for the lowest 40% has been negative since 2002, as the methodology includes low-income tax credits. However, once you add in the other types of federal taxes, it's no longer negative, but the lowest quintile's share of total federal taxes was less than 1% in 2007.

In contrast, the top 10% of taxpayers paid 55% of total federal taxes in 2007. The lower 90% of taxpayers paid the other 45%.

Re:Headline Is So Very Wrong

[Sarten-X]

In the grand scheme of things, Google pays taxes on all their income. They just shift income around so that the majority of it falls under the lowest tax rate.

It makes perfect sense: Why should anyone pay American taxes on money sitting in Germany? Shouldn't they pay German taxes on it?

I have some German heritage, so is Germany entitled to my income taxes?

Re:Headline Is So Very Wrong

[ptbarnett]

The rich still pay a higher percentage of their income in taxes, but that percentage has dropped quite a bit over the past few decades.

The tax rate may have dropped, but the share of all federal taxes paid by the top 1% has increased: from 15.4% in 1979 to 28.1% in 2007. The total share paid by the top 20% has also increased, but not as dramatically: from 56% to 69%

In contrast, the share of all federal taxes paid by the lowest 80% has steadily declined in the past two decades. See the first table on page 4:

http://cbo.gov/publications/collections/tax/2010/all_tables.pdf.

Re:Headline Is So Very Wrong

[Maxo-Texas]

The average person starts off with a base non federal (mostly state) tax rate of over 10%. That ignores state income tax- its just school tax, gas tax, cigarette tax, phone tax, car license tax, toll road fees.

That tax rate is fixed (if you have a cell phone, your taxes are about $30 regardless of if you are rich or poor).

That means the effective tax rate on the wealthy is .03% for the same taxes.

After that you have social security tax. 7.5% on people making up to about $100k. (but a "hidden additional 7.5% you don't see). Not paid by the wealthy again.

This means people making $50k to $100k pay a higher portion of their income in taxes than people making much more. Federal income tax is just a red herring. but even there, the wealthy can structure their "income" as "dividends" and other tax advantaged income and pay a much lower rate on their income than everyone else.

It's broken. The top .5% are getting about 20% of the income and have about 40% of the wealth. They should be paying about 20% of the income taxes and 40% of the property taxes.

When you include the tiny amount for the bottom 20%, the wealthy should probably pay a little bit higher taxes than that too. They don't.

Re:Headline Is So Very Wrong

[blueg3]

Just so you know, a tax rebate is simply when tax paid is greater than tax owed. Most tax filers who get rebates are getting back some fraction of the money that they already paid through withholding.

The income at which a family can manage to pay zero tax (that is, their rebate is equal in size to the total withheld) is roughly the same as the median income (which in turn is about twice the poverty level). About 36% of income tax filers paid zero or less tax, although of course there are many cases where you are not required to file income tax forms at all.

Re:Headline Is So Very Wrong

[clarkkent09]

Poor people currently pay either no taxes at all or very low taxes as proportion of their income. Bottom half pays no income tax at all: http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0 How does calling for less taxes overall in your opinion translate to "wanting to keep poor people as the only ones who pay taxes"? It doesn't make any sense at all.

Re:Headline Is So Very Wrong

[Anonymous Coward]

The top 10% of taxpayers may have paid 55% of the taxes, but they also earned just about 50% of the income[1]. It seems only fair that they pay around 50% of the taxes.

In fact just over 50% sounds fine to me, since the top 10% probably have a little more to spare after food, shelter, and clothing than the bottom 90% and can better afford to help support shared infrastructure, war, et al.

[1] http://elsa.berkeley.edu/~saez/saez-UStopincomes-2007.pdf

Re:Headline Is So Very Wrong

[BlendieOfIndie]

Only poor people pay taxes.

Clearly you have never reviewed the IRS' Statistics of Income. I'll quickly fill you in. People making less than 40k per year pay less than 5% of all personal income tax. That is 57% of ALL tax files pay 5% of ALL individual income tax. If you don't believe me, look it up. Now, I realize that federal income tax is only a portion of the taxes everyone pays, but PLEASE don't keep spreading the BS that you're spreading.

IRS Statistic of Income

Re:Headline Is So Very Wrong

[gothzilla]

Hate to break it to you but the tea party formed way before any politician or media outlet even knew what it was. The original organizers even banned Republican politicians from speaking at the first meets.
Not sure what universe you're living in if you think people who are opposed to our government wasting our money need to be told what to think and say.

Re:Headline Is So Very Wrong

[Mister Whirly]

Because it seems every time there are tax cuts, they somehow benefit the people (or corporations) making the largest amounts of money the most. See "trickle down economics" or "voodoo economics". The middle class pay the greatest percentage of their income to taxes. The ultra-rich generally pay very little, unless they are honest.

Re:Headline Is So Very Wrong

[Anonymous Coward]

"This is why need to scrap the entire tax code and replace it a federal sales tax."

This idea will never go away, and it's incredibly naive. The UK applies a 17.5% VAT on everything sold in their country and yet it still only accounts for 15% of total revenue. You can not cover federal budgets with sales taxes alone. It sounds simple and straightforward in theory, but has serious ramifications on peoples spending habits which in turn affects the governments ability to generate revenue.

Re:Headline Is So Very Wrong

[blackraven14250]

Because they want to extend the Bush tax cuts for the 250k+ crowd, while the opposition only wants to extend it for the >250k crowd. Also, they want to change the payments for the lowest bracket so they're greater than 0%.

Re:Headline Is So Very Wrong

[Red Flayer]

The tea party is a name for the majority of americans who oppose the wasting of over 3 trillion dollars now by our government. It's not an organized group. There is no leadership. People in the tea party are just as angry at Republicans as they are Democrats, just the Dems more so since they are the ones responsible for the stimulus wastes.

Puh-lease. The tea party is the name for a group of people who have been led by the nose by millions and millions of dollars poured into "grassroots" network efforts by the extremely wealthy people who stand to benefit most from the anti-regulatory, anti-tax policies the tea party supports.

Please explain why you support the government wasting over 3 trillion dollars of borrowed Chinese money, and then please explain why people opposed to that make you so angry.

No need, as I don't believe the money is wholly wasted. What makes me angry is the 4-7 trillion dollars we've spent and have accrued liability for with pointless boondoggles in Iraq and Afghanistan, and the people who blindly support those "wars". But that's beside the point.

The simple fact of the matter is that spending and tax reduction during economic downturn has been shown to be ineffective at best (the Hoover presidency shows how bad it can be). If you cut spending on programs that have domestic impact, you end up *further reducing* government revenue due to contraction... which makes the deficit even worse. Stimulus spending is an investment. Properly done ( national infrastructure, aid to local and state governments), stimulus spending, even if financed by debt, is the right course of action.

People who advocate government austerity in the face of a deep recession are asking for the recession to deepen, and for the deficit to get worse.

Re:Headline Is So Very Wrong

[TooMuchToDo]

Favorite Teabagger Quote: "Keep government away from my Medicare!" FACEPALM

Re:Headline Is So Very Wrong

[DeadCatX2]

We don't mean "eat shit out of the garbage" poor. More like "living hand-to-mouth" poor. "Paycheck to Paycheck".

Also, try looking at all the other taxes besides income taxes. Like payroll taxes...that are capped once you earn so much.

And that "bottom half pays no income tax" crap? You're full of it. I'm right around the median income in the US and I most certainly pay a significant income tax.

Re:Headline Is So Very Wrong

[Obfuscant]

Because it seems every time there are tax cuts, they somehow benefit the people (or corporations) making the largest amounts of money the most.

Because those are the people paying the most in taxes to start with. If you look at the numbers, the vast majority of taxes are paid by the vast minority of the people.

It is impossible to enact a tax cut for people who already pay no taxes, and that's nearly 50% of the people in the US already.

Your statement is a tautology. A 5% across the board tax cut will save 50% of the people -- the poor -- nothing at all, while it will save those who pay a lot of taxes a lot. And those in the middle save in the middle.

Re:Headline Is So Very Wrong

[ptbarnett]

Because it seems every time there are tax cuts, they somehow benefit the people (or corporations) making the largest amounts of money the most.

If you look at the absolute numbers -- that's true, because the people making the largest amount of money pay most of the taxes (the top 10% paid 55% of all federal taxes in 2007). However, if you look at it in percentage terms, the burden is disproportionately on higher incomes.

For example, if taxes go up as currently legislated in 2011, the federal government will get an additional $3,700 billion over the next 10 years. But, if they only let taxes go up for couples with incomes over $250,000/year (or singles over $200,000/year), the government will get $700 billion.

Consider what would happen if taxes were to remain as they are now (in 2010). The "rich" would get $700 billion more over the next 10 years, and everyone else would get $3,000 billion more. That means that the "rich" would get 19% of the total (700/3,700).

But, this definition of "rich" paid about 44.3% of all federal taxes in 2007 (and 61% of federal individual income taxes). So, they would be getting less than half of their "share", if that money were spread proportionally (according to all taxes paid).

FYI, I'm estimating that the 250K/200K cutoff separates the top 10% from the bottom 90%.

Re:Headline Is So Very Wrong

[anwaya]

All of this depends on your definition of "poor". According to some, if you make $50000 per year you are poor. According to others any household making under $100000 is poor.

The problem is that the Teabaggers and GOP appear to think that anyone making upwards of $250K is poor, and can't afford to pay taxes.

Re:Headline Is So Very Wrong

[daeglo]

Actually, I would say about 1/3 of people with 0 tax liability see a net income from the government.

Of the 42.5 million tax returns that pay no income taxes, 52.9 percent received some form of a refundable credit...

Re:Headline Is So Very Wrong

[ptbarnett]

According to the IRS last year, I made just over 90k last year (gross) and I was in the top 15% of income earners in the U.S. So the top 10% might be lower than you think.

The CBO documents their methodology in the URL that I cited earlier. They include some sources of income that the IRS may not include.

For 2007, the minimum adjusted income for the top 10% was $102,900 for a single person household. To calculate the number for multiple persons, multiply that number by the square root of the number of people in the household.

So, it's not likely that the CBO's methodology and the IRS's methodology line up exactly. But, I think the top 10% is close enough to the $250,000 threshold for couples with two children.

Re:Headline Is So Very Wrong

[level_headed_midwest]

Actually, a fair number of people get net income from the IRS because they get "refundable tax credits" and the Earned Income Tax Credit. Most tax credits either reduce your taxable income or reduce the amount of tax levied, but in any case, you can never end up with anything less than $0 on the "tax owed" line, so you simply get all of your withheld money back. Refundable credits and the earned income tax credit actually let you end up with a negative figure for "tax owed" so you get a refund in excess of what was withheld from your paychecks- in other words, net income from the IRS.

Re:Headline Is So Very Wrong

[Anonymous Coward]

Ah yes, corporations just last year got the idea that they could mobilize millions of people to elect representatives favourable to their policies. It's amazing it took them so long.

Herbert Hoover *increased* spending massively; it only appears small in light of how much FDR increased it, but FDR campaigned in 1928 on the idea that Hoover was spending too much.

I think there must be a rule that someone who begins a post with "Puh-lease" is almost guaranteed to know nothing of what he writes about.

Re:Headline Is So Very Wrong

[Anonymous Coward]

$50k/year is around the median household income. You can only get out of all federal taxes at that level if you qualify for every possible credit; most people don't. (You also still don't get out of social security, IIRC, which is, what, a little over 6%? Oh, wiki says it's 7.65%) Calling the median income "poor" reveals that someone has an inherently skewed viewpoint.

Quotes from that article like "it is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government" also reveal a certain bias (whether through ignorance or malice). Quotes like this are often used to claim unfairness in the tax structure, in the sense that the rich always cry that their taxes are too high... but the top 10% of US earners are making MORE than 73% of the money (closer to 83% back in 2007, after googling up some charts). Under a perfectly flat tax structure, they'd be paying the same proportion as what they earned, and under a progressive system they'd be paying at least somewhat higher.

The *truly* poor are paying very little in federal taxes. The gap created by the poor not paying much, the corporations not paying much (often they only actually pay single digit percentages, and that's only against the profit, whereas actual human beings are taxed against their total revenue), and the rich not paying much? It comes out of the middle class (especially those just above the median income... the 50k-100k group), and out of debt (which, because the rates are skewed, will also disproportionately come out of the middle class, just not right this year). That's basically how you know if someone advocating a tax change is sane or not; does their plan address this problem, or is it just a politician asking to make the wealth gap between the CEO class and everyone else a little larger?

(It's really informative to see the occasional article asking actual economists what the top tax bracket should be. When you can get them to actually give a number, or at least a range, you tend to get answers of 60% or higher... not today's 35% on income, 28% on stock, and you can get as low as 15% on some other investments even if it's millions of dollars worth...)

Re:Headline Is So Very Wrong

[Red Flayer]

your first citation: where have you been? It's all over the fucking place. JFGI.

However, we DO know that Media Matters Inc. IS funded by a single man with an angenda to control the world cash flows, known as George Soros who recently directly donated a million with a specific agenda [CITATION [indyposted.com]].

So? It makes it worse that he's open about it, instead of doing it in secrecy like the Kochs? And Media Matters is NOTHING like the tea party.

[CITATION NEEDED]. The Iraq and Afghanistan wars under the Bush administration cost around $200 billion, but the Obama administration recently granted $390 billion for the same wars (NOT including the stimulus and health care bills) [CITATION [wikipedia.org]].

Oh, you fucking tool. $200 billion under Bush? That figure was an estimate in 2003, and it was *laughed at* because everyone knew it was extremely lowball. Here's the first citation... written by a Nobel prize-winning economist: Three-Trillion-Dollar-War-Conflict wherein the estimated total cost is 3-5 Trillion... and Stiglitz has subsequently published that they underestimated some of the costs, especially the cost of caring for the disabled vets returning home (to the tune of an additional 400 billion), and that the revised estimate is 4-7 Trillion dollars.

If there is anyone misinformed here, it is you. Because you disregard costs other than budgetary, which any economist knows is invalid.

Re:Headline Is So Very Wrong

[jwhitener]

And it has been getting steadily worse
http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States

Re:Headline Is So Very Wrong

[nabsltd]

In response to your FYI, the top 5% is earners over $157K, and above 250K is a meager 1.57%. Thus that $700B will be distributed over a mere 1,699 households over the next 10 years.

These numbers have to be wrong, because I can guarantee you there are at least 2000 homes over 250K just because of sports (MLB has 1200 players with a minimum salary of $400K, NFL has 1280 players with a minimum of over $300K).

I also know that my home makes over $250K/year, and we're in the "poor" neighborhood in our county. There are hundreds of homes that make than we do, just in our county.

Re:Headline Is So Very Wrong

[timeOday]

Remember, income tax is only one kind of tax (and some types are actually regressive). By a more inclusive measure of total taxation, the total taxation rate varies by only a few percent among the top 60% of all taxpayers, which all pay around 30%. The bottom 20% of earners pay only about 19%. So, total taxation is somewhat progressive, but not all that much.

Re:Headline Is So Very Wrong

[ZFox]

"You do know about stocks and dividends, right?"

You do know that they are still taking a risk with their money, right? Here are some other questions to ponder: Just what does happen to that money they invest? Does it just disappear into a magical money farting machine?

There are, however, major problems when risk is regulated away in an effort to control the cyclical nature of the markets and companies performing risky business practices being too big to fail.

Re:Are you going to say they're just being smart?

[Rary]

What if it was Microsoft?

It is. They're mentioned in the article as well.

Re:So?

[C_Kode]

Apparently this is legal, so why should I care? It's not as if the government is going to do better things with that money than Google is.

That's a straight up ignorant statement.

Re:So?

[dachshund]

Apparently this is legal, so why should I care? It's not as if the government is going to do better things with that money than Google is.

One of the things they could do is fund their operations, rather than borrowing from overseas with substantial interest penalties for me and my children to pay. Trot this argument out again when the government stops doing that --- then we can talk about whether the government needs that money.

TFS is misleading even outside the headline

[DragonWriter]

TFS says "Google only pays a 2.4% tax rate"

TFA says "Google’s income shifting [...] helped reduce its overseas tax rate to 2.4 percent"

Re:So?

[wowbagger]

"That's a lot of textbooks, teacher's salaries, roads to be paved, police/fire stations to NOT be closed etc etc etc.."

That assumes the taxes collected would be spent on such matters, vs. on wars, bridges to nowhere, monuments to government leaders, etc.

I'm the submitter

[bonch]

For the record, I tried to submit a different headline, but the buggy, AJAX-ridden story editor wouldn't display the changes I made in the text boxes when I hit Preview. It kept displaying the old text unchanged. I even refreshed the page and tried a different browser. Eventually, I said, "Fuck it" and submitted, hoping it would post the changes.

Re:I'm the submitter

[Dahamma]

Well, in that case the summary wasn't correct, either. Google paid a 2.4% tax rate on foreign income. Their total tax rate was about 22%. That's an order of magnitude higher, probably would have been worth mentioning...

at least try to get it right

[wmeyer]

If even a tenth of those who have developed skills in software would spend a little time on the study of economics, there'd be less nonsense here.

Taxes on corporations are hidden taxes on consumers. End of story.

2.4% is incorrect

[atticus9]

Google on average pays 20% in taxes, as stated in their earnings. Which is still pretty low, but nowhere near the 2.4% in the article.

Not avoiding taxes, just partitioning income

[Theaetetus]

The Bloomberg "interactive" infographic tiptoes around this point. They note that Google, US, has licensed some IP rights for "undisclosed fees," but that "U.S. companies have an incentive to set such prices low, reducing their taxable income at home."
Essentially, Google licenses the IP to the Bermuda holding company for $1000, which Google, US pays taxes on.

Now, the Bermuda company licenses it to the Irish company, which then sells products and advertising to make a ton of money. That ton of money goes, by way of the Netherlands, back to the Bermuda company...
... where it sits indefinitely.

"But no," you say, "it returns to the US in license fees!"
Nope. As noted, Google sets its license fee intentionally low so that it has very little income and thus pays very little US income tax. If that money was returning to the US in license fees, then they would have all that income and pay taxes again. The money, generated overseas, stays overseas (well, Bermuda, anyways), and is not coming back into the US. Google, the multinational has avoided paying US taxes on its international profits by keeping its international profits separate from its US profits. Google, the US company, hasn't avoided any US taxes.

The article also notes this:

Deferred Indefinitely

Technically, multinationals that shift profits overseas are deferring U.S. income taxes, not avoiding them permanently. The deferral lasts until companies decide to bring the earnings back to the U.S. In practice, they rarely repatriate significant portions, thus avoiding the taxes indefinitely, said Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology.

Conceptually, this makes some sense, too... Why should Google US have to pay taxes on money that was earned overseas and is never brought into this country?Like, say they make a lot of money on advertising in the UK, and decide to open a London office and hire a bunch of people there... Why should the US government get a piece of money earned outside the US and spent outside the US?

Tax the rich. (The rich say so.)

[shmlco]

"... but I do begrudge people from demanding that the rich pay even more taxes.'

Warren Buffett himself says that the rich do NOT pay enough taxes, and that the taxes on the rich should be higher.

"Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”

"Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent."

http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

Re:Summing it up

[jwhitener]

But the rich aren't paying. That's the entire point. Capital gains taxes are low, loopholes, and other advantages makes their effective tax rate much lower than the middle class.

As for those in the bottom rung paying nothing, did it every occur to you why they are in that position, and why the USA has the highest income inequality in the entire world? Why the average wages went down by 2000 dollars for the middle class the last 10 years, but the top earners wages tripled?

Maybe if the top didn't have the vast majority of the country's wealth, they wouldn't be paying, by volume, so much of the taxes. The percent paid of their income certainly isn't high, but since their income itself is so high, the actual dollar amount is high.

Re-read this thread since it has been modded a bit more now. There are plenty of links and examples about how little the very rich actually pay.

From 1950-until Reagan we had very high taxes on the rich (70-90%) and the rich managed to stay rich, our factories continued to employ workers, and the country was largely stable. I have no idea why people are freaked out about a possible return to Clinton's tax rate of 39% and talk of (hopefully) closing some loop holes...