Google Questioned by SEC Over Earnings in Low-Tax Countries

According to Bloomberg.com, Google has been questioned by the U.S. Securities and Exchange Commission in regards to their overseas tax strategy that saved the company a reported $3.1 billion. The “Double Irish” and the “Dutch Sandwich” strategies were both used by the internet giant.

From Bloomberg.com:

SEC officials asked Google for “disclosures to explain in greater detail the impact on your effective income tax rates and obligations of having proportionally higher earnings in countries where you have lower statutory tax rates,” according to a Dec. 2 letter.

The company responded to the requests for information, the filings show. The SEC said in a Feb. 3 letter that it had completed its review of Google’s filings, and has “no further comments at this time on the specific issues raised.”

Google, owner of the world’s most-popular search engine, has used a strategy that has gained favor among some U.S. companies to reduce taxes. Google cut its income taxes by $3.1 billion over three years by shifting the bulk of foreign profits to Ireland, then the Netherlands and eventually to no-tax Bermuda, according to regulatory filings in the U.S. and abroad.

The tax-cutting strategy, involving a pair of techniques known as the “Double Irish” and the “Dutch Sandwich,” helped cut the company’s income-tax rate to 2.4 percent on the profits it attributed to its foreign subsidiaries during the three-year period, filings show. The statutory corporate income tax rate in the U.S. is 35 percent.

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NYC Mayor's '09 Tax Forms Show More Offshore Money

In 2009 Michael Bloomberg's philanthropic foundation invested over $75 million in offshore tax havens. Although not illegal, off-shoring reduces the amount of money the government has to function. Mayor Bloomberg says all his money is held in blind trusts, meaning he has no idea where his money is invested. This practice is designed to eliminate any conflicts of interest as he serves as Mayor.

The Associated Press reports:

The Bloomberg Family Foundation's 2009 tax forms were filed to the state Monday after two extensions.

Bloomberg's foundation, which gives away hundreds of millions of dollars, has maintained offshore investments for years — typically more than $100 million annually — but that only came to light earlier this year.

Bloomberg spokesman Stu Loeser declined to comment on the latest foreign investments.

When first confronted with questions about the investments last spring, Bloomberg defended the tactic but said he has no control over the money. His investments are maintained in a blind trust that prevents him from knowing his specific holdings to guard against conflicts of interest.

"As far as I know," he said last spring, "the investments that my money managers make are perfectly legal, they're fully disclosed and they're appropriate to maximize the assets which I'm giving away to charities."

The mayor signs his own tax forms, which clearly list the offshore investments.

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The Tax Haven That's Saving Google Billions

New reports have emerged regarding the complicated international business structure to keep its corporate tax rate at a super low 2.4%. The search giant takes advantage of generous laws in countries including Ireland, the Netherlands, and Bermuda to save on their tax bill.

Business Week.com reports:

The heart of Google's (GOOG) international operations is a silvery glass office building in central Dublin, a block from the city's Grand Canal. In 2009 the office, which houses roughly 2,000 Google employees, was credited with 88 percent of the search juggernaut's $12.5 billion in sales outside the U.S. Most of the profits, however, went to the tax haven of Bermuda.

To reduce its overseas tax bill, Google uses a complicated legal structure that has saved it $3.1 billion since 2007 and boosted last year's overall earnings by 26 percent. While many multinationals use similar structures, Google has managed to lower its overseas tax rate more than its peers in the technology sector. Its rate since 2007 has been 2.4 percent. According to company disclosures, Apple (AAPL), Oracle (ORCL), Microsoft (MSFT), and IBM (IBM)—which together with Google make up the top five technology companies by market capitalization—reported tax rates between 4.5 percent and 25.8 percent on their overseas earnings from 2007 to 2009. "It's remarkable that Google's effective rate is that low," says Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Dept. "This company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent." The corporate tax rate in the U.K., Google's second-largest market after the U.S., is 28 percent.

In Bermuda there's no corporate income tax at all. Google's profits travel to the island's white sands via a convoluted route known to tax lawyers as the "Double Irish" and the "Dutch Sandwich." In Google's 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't stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008.

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't 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 "Double Irish" nickname.)

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Bank Tax Tops G20 Meeting Agenda

Finance ministers, representing 20 of the largest economies in the world, are meeting this weekend. They reportedly plan to discuss an international tax on banks, although it is unsure how many countries support the proposal. However, the group is not expected to reach a final agreement.

The IMF and World Bank are also holding their spring meetings in Washington this weekend. Ahead of those talks, smaller gatherings of central bankers and finance ministers will take place. Officials of the Group of Seven wealthiest nations will gather Thursday night, but the group has ceded policy supremacy to the larger G20, which will kick off their meeting Friday.

A U.S. Treasury official said he detected growing international support for a bank levy, but that the details needed to be worked out. The official said that not all countries would have to follow the exact same approach.

President Barack Obama has proposed a bank tax in his budget, aimed at recouping U.S. government spending on the $700 billion bank bailout.

The U.K. has also proposed a bank tax to protect taxpayers from future bailouts.

Not all G20 nations are supportive of the idea.

Continue reading at MarketWatch.com…

Pelosi: Wall Street Tax must be International

From Reuters:

Any tax imposed on financial transactions would have to take effect internationally to prevent Wall Street jobs and related business moving overseas, U.S. House Speaker Nancy Pelosi said on Thursday.

"It would have to be an international rule, not just a U.S. rule," Pelosi said at a news conference. "We couldn't do it alone, we'd have to do it as an international initiative."

The top Democrat's comments seemed to spell longer odds for the Wall Street tax, which some Democrats in the House of Representatives are proposing as a way to pay for job-creating legislation.

The tax, which could raise $150 billion per year, would tap into widespread public outrage at Wall Street in the wake of the financial crisis, but support is lackluster among key legislators.

"This is just something that is on the table, it hasn't been developed to a high priority. but it has substantial currency in our caucus," Pelosi said.

Treasury Secretary Timothy Geithner said on Thursday that he has "not seen a version of that tax that I think would be appropriate for our country."