{"id":28942,"date":"2010-11-16T10:29:38","date_gmt":"2010-11-16T15:29:38","guid":{"rendered":"http:\/\/thesocietypages.org\/socimages\/?p=28942"},"modified":"2011-11-23T19:41:40","modified_gmt":"2011-11-24T00:41:40","slug":"guest-post-corporate-tricks-of-the-trade","status":"publish","type":"post","link":"https:\/\/thesocietypages.org\/socimages\/2010\/11\/16\/guest-post-corporate-tricks-of-the-trade\/","title":{"rendered":"Corporate Tricks of the Trade"},"content":{"rendered":"

Cross-posted at\u00a0Reports from the Economic Front<\/a>.<\/em><\/p>\n

How do corporations escape\u00a0paying taxes?\u00a0 Businessweek recently\u00a0ran a story <\/a>on Google that helps to explain how they do it.<\/p>\n

The story begins by noting that: \u201cGoogle has made $11.1 billion overseas since 2007.\u00a0 It paid just 2.4 percent in taxes.\u00a0 And that\u2019s legal.\u201d\u00a0\u00a0\u00a0This is pretty incredible because Google does business in many advanced capitalist countries with high tax rates.\u00a0 For example, \u201cThe corporate tax rate in the U.K., Google\u2019s second-largest market after the U.S., is 28 percent.\u201d<\/p>\n

While the article focuses on Google, and how it avoids paying taxes, it made clear that most of the leading high-technology companies use remarkably similar techniques to achieve similar results.<\/p>\n

Ok, so how does\u00a0Google do it?\u00a0 Google\u2019s office in Ireland is the center of the company\u2019s international operations.\u00a0 In 2009 it \u201cwas credited with 88 percent of the search juggernaut\u2019s $12.5 billion in sales outside the U.S.\u201d\u00a0 But Google doesn\u2019t pay taxes on that amount,\u00a0because most of the profits went to Bermuda, where there is no corporate income tax.<\/p>\n

So, how did Google get its profits to Bermuda?\u00a0\u00a0Businessweek explains:<\/p>\n

Google\u2019s profits travel to the island\u2019s white sands via a convoluted route known to tax lawyers as the \u201cDouble Irish\u201d and the \u201cDutch Sandwich.\u201d In Google\u2019s case, it generally works like this: 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\u2019t stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008.<\/p>\n

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\u2019t 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. (The subsidiary managed in Bermuda is technically an Irish company, hence the \u201cDouble Irish\u201d nickname.)<\/p><\/blockquote>\n

This set-up (as Businessweek describes it) also helps Google lower its tax bill in the U.S.\u00a0 Google Ireland licenses its search and advertizing technology from Google\u2019s headquarters in Mountain View, California.\u00a0 Obviously this technology is worth a lot\u2014but Google headquarters keeps the licensing fee to Google Ireland low.\u00a0 Doing so means that Google headquarters can minimize its U.S. earnings and thus its tax obligations to the U.S. government.\u00a0 And of course, Google Ireland knows how to move its profits around to minimize its tax liabilities.<\/p>\n

\"\"<\/a><\/p>\n

Not surprisingly, corporations are always eager to learn from each other.\u00a0 Thus, \u201cFacebook is preparing a structure similar to Google\u2019s that will send earnings from Ireland to the Cayman Islands, according to company filings and a person familiar with the arrangement.\u201d\u00a0 Microsoft already has one in place.<\/p>\n

According to one study cited by Businessweek (done by Kimberly A Clausing, an economics professor at Reed College), these kinds of profit shifting arrangements cost the U.S. government as much as $60 billion a year.\u00a0 And of course Ireland also loses plenty.\u00a0 Too bad that the governments of Ireland and the U.S. are suffering from large federal deficits and under immense pressure to slash spending.\u00a0\u00a0 Collateral damage I guess to the profit-making drive.<\/p>\n

What is being done to change this\u00a0apparently legal racket?\u00a0 According to Businessweek:<\/p>\n

The government has made halting steps to change the rules that let multinationals shift income overseas. In 2009 the Treasury Dept. proposed levying taxes on certain payments between U.S. companies\u2019 foreign subsidiaries, potentially including Google\u2019s transfers from Ireland to Bermuda. The idea was dropped after Congress and Treasury officials were lobbied by companies including General Electric, Hewlett-Packard, and Starbucks, according to federal disclosures compiled by the nonprofit Center for Responsive Politics. In February the Obama Administration proposed measures to curb companies\u2019 ability to shift profits offshore, but they\u2019ve largely stalled.<\/p><\/blockquote>\n

A\u00a0nice cozy system<\/a>, isn\u2019t it.<\/p>\n","protected":false},"excerpt":{"rendered":"

Cross-posted at\u00a0Reports from the Economic Front. How do corporations escape\u00a0paying taxes?\u00a0 Businessweek recently\u00a0ran a story on Google that helps to explain how they do it. The story begins by noting that: \u201cGoogle has made $11.1 billion overseas since 2007.\u00a0 It paid just 2.4 percent in taxes.\u00a0 And that\u2019s legal.\u201d\u00a0\u00a0\u00a0This is pretty incredible because Google does […]<\/p>\n","protected":false},"author":1853,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[36,98,64,8076,1817,1789,3920,304],"class_list":["post-28942","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-economics","tag-capitalism","tag-globalization","tag-nation-bermuda","tag-nation-ireland","tag-nation-the-netherlands","tag-nation-united-states","tag-the-state"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/28942","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/users\/1853"}],"replies":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/comments?post=28942"}],"version-history":[{"count":9,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/28942\/revisions"}],"predecessor-version":[{"id":38332,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/28942\/revisions\/38332"}],"wp:attachment":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/media?parent=28942"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/categories?post=28942"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/tags?post=28942"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}