Outrage predicted over Google tax avoidance

Google avoided about US$2 billion in worldwide income taxes last year by shifting $9.8b in revenues from its non-US subsidiaries into a Bermuda shell company, Bloomberg reported.

It said the amount of revenue shifted was up from $5.4b in 2008.

The company is among those that have come under fire in Europe, Australia and New Zealand for using tax avoidance schemes such as the "double Irish" and "Dutch sandwich" to transfer profits from subsidiaries, including Google New Zealand, into tax havens.

Bloomberg drew attention to Google's tax affairs in 2010, saying it used such schemes to pay tax at a rate of just 2.4 per cent on its non-US profits. That increased to a still lowly 3.2 per cent last year, it reported.

New Zealand Revenue Minister Peter Dunne said last month that he had asked for an urgent report on tax avoidance by multinationals after Labour revenue spokesman David Clark said companies such as Facebook were making fools of the Government and accused him of inaction.

However, Dunne has since indicated he believes the solution is likely to lie in multilateral action to close tax loopholes by the likes of the Organisation for Economic Cooperation and Development.

Many internet companies had little presence in New Zealand and it was a "generally accepted principle that companies should be taxed where their economic activity took place", he said.

"The bulk of what these companies do, in terms of programming, designing websites, running servers, selling advertising, is done overseas."

However, he also acknowledged "the problem is not just that these large companies are not paying substantial tax here, but that they tend not to be paying substantial tax anywhere".

The Italian government this month accused Google of failing to declare [Euro]240 million of income in Italy. The Italian finance ministry said Google Italy had a contract with Google in the United States and with Google Ireland "pretending that Google Italy only had an auxiliary role, which was not at all reflected in the facts", Britain's Telegraph reported.

Bloomberg said it expected the increase in the amount of the earnings Google was routing to Bermuda "could fuel the outrage spreading across Europe and in the US over corporate tax dodging".

Last week, the European Union's executive body, the European Commission, advised member states to create blacklists of tax havens saying tax evasion and avoidance cost the EU a "scandalous" €1 trillion a year, Bloomberg reported.

Google has consistently maintained it complies with all tax laws.

Apple, Facebook, Google, Microsoft and pharmaceutical firm Pfizzer have all been identified as using a legal accounting technique called the double Irish to avoid tax.

The "double Irish and sandwich" technique involves such multinationals setting up two companies in Ireland, one usually registered in an out-an-out tax haven such as the Cayman Islands, that sells the company's intellectual property to the other, and a third company that acts as an intermediary between the two firms in Holland, Switzerland or Luxembourg.

The structure allows firms to largely avoid paying even Ireland's low 12.5 per cent corporation tax on profits.

"The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe," Richard Murphy an accountant and director of Tax Research in Norfolk, England, told the news agency .

"The political awareness now being created in Britain, 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."