Google avoided paying foreign taxes on €15.9 billion ($19.15 billion) in 2016 by relying on a Bermuda-based shell company, Bloomberg reported Tuesday, citing multiple regulatory filings with the Dutch Chamber of Commerce. While Google has been employing the so-called "Double Irish with a Dutch Sandwich" technique to legally avoid paying taxes for years now, the company will soon be prevented from doing so, with Ireland closing its loophole in 2015 but allowing firms that were already employing it five more years to adjust their books and accounting practices and make sure they're in line with the new regulations. While that deadline is coming to an end in two years, Google's tax avoidance practices using the technique are actually becoming more aggressive as its filings with the Dutch regulator reveal it shielded approximately seven percent more money using the controversial tax structure in 2016 than it did in the previous year.
In essence, the structure involves an Irish subsidiary that accumulates the majority of Google's international ad sales, sends them to a Dutch shell company, then has that firm with no employees shift them to another Bermuda shell company which is owned by a second subsidiary registered in Ireland. The technique shields the majority of Google's overseas profits and has been the subject of harsh criticism from various political structures in Europe, having partially prompted the European Commission to start a major digital tax reform that's expected to start taking shape over the course of this year. The Mountain View, California-based tech giant remains quick to point out that its practices are entirely legal but is understood to be preparing for harsher regulations in the near term. While Google's effective tax rate amounted to just over 19 percentage points on an international level in 2016, that figure is likely to grow in a significant manner over the coming years if the EU is successful in realizing its plan to start taxing Internet companies based on their revenue instead of profits.
Going forward, Google may be inclined to shift more of its international profits to the United States whose new tax law offers companies a one-time 15.5 percent repatriation tax rate and a fixed 10.5 percent rate on all subsequent foreign earnings. As the same legislation also mandates additional tax fees on patent royalties collected outside of the U.S. which are handled by Google's Bermuda subsidiary and given the political pressure in Europe, the company's tax practices are likely to be significantly revamped over the course of the next two years. The likes of Amazon and Facebook are expected to undergo similar tax restructurings by 2020.