Anorak | Google’s Tax Dodging Ways Explained

Google’s Tax Dodging Ways Explained

by | 14th, October 2011

A REPORT out of the US about an investigation into Google’s tax dodging ways.

Google reported an effective tax rate of 18.8 percent in the second quarter, less than half the average combined U.S. and state statutory rate of 39.2 percent.

Something’s going on, obviously. What is actually going on is technically complex but can be, at the risk of losing a bit of detail, explained simply enough. There’s essentially two rules you need to understand.

1) An American company only pays the corporate income tax (what we call corporation tax) on profits it takes back into America. If an American company makes profits in, say, Ghana, the profits stay in Ghana or move anywhere in hte world other than the US, then the US doesn’t tax those profits.

2) Within the European Union we’ve got “freedom of establishment”. That means you can set up your company anywhere in the EU and then do business anywhere in the EU. Yes, it’s a little bit more complicated but not all that much.

So, what you could do, if you were a purely online firm, no need  for girt big factories or anything, is the follwoing. So, you’re a US company but you want to sell stuff to Europeans. OK, so, let’s have a company in the EU to sell things to Europeans (say, adverts on search engines, just as an example). We’ll stick that company in Ireland because Ireland has

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Posted: 14th, October 2011 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink