The Dutch Chamber of Commerce has filed new documents that allege Google used a Dutch shell company to move some €19.9 billion, the equivalent of right around $23 billion, over to Bermuda in order to avoid higher Dutch tax rates. The document goes on to note that Google Netherlands Holdings BV moved about €4 billion more than it did in 2016. The way that the funds usually go from there, in past years, is over to Google’s Irish operations, which are based in Bermuda and don’t pay any taxes despite operating in Ireland. This arrangement is technically legal, and eliminates a large portion of the foreign taxes that Google has to pay each year. It will seemingly be coming to an end in 2020, though, as Irish authorities caved to pressure from the United States and Europe back in 2014 and chose to implement a law that will close that loophole by issuing tax bills to all companies operating in Ireland, regardless of where their home base is located.
Background: This is far from the first time that Google has been called out for using tax havens, but given that the Irish law will take effect in time for the 2020 fiscal year, this may be the last year that the company can take advantage of this particular loophole. This seems to be the only tax haven style loophole that Google is currently employing, so it’s likely that the company’s foreign profits will have nowhere to hide next year. Google has stated that it currently pays an “global effective tax rate” of about 26%, the grand mean of all of the tax rates its profits are subject to around the world. Google’s current US tax rate is somewhere around 21%, meaning that it actually pays higher taxes than that in some of its foreign centers of operation. That tax rate is likely to rise sharply with Ireland now in the mix, though Google will probably stop shifting money over once the new law takes effect, or it may change its tax strategy to put more money on the books through areas with lower tax rates, rather than avoiding paying taxes altogether.
Impact: While what Google is allegedly doing is technically legal for now, that will change soon. It’s already illegal to use tax havens in some jurisdictions and could result in fines or even criminal charges for tax avoidance. While that seemingly won’t be the case with Ireland’s new tax laws, taxes will be levied on revenue that was previously untouched. Google, for its part, claims that it complies with applicable tax laws in the places it operates and plans to continue doing so. That means that it’s quite likely that the company will simply shrug its shoulders and pay up, rather than moving money around to minimize the amount it’s forced to pay. All of that, of course, is just speculation. Nobody will know for sure how Google is going to handle this change in international tax laws, largely inspired by its own actions, until the 2020 tax bills start coming out.