Too big to pay: why Google's tax dodges hurt you

Search giant Google Inc, one of the biggest companies on the planet, has slashed its tax bill by a whopping $3.1 billion over the last three years using a process euphemistically known as “transfer pricing”.

The process involves strategies that tax lawyers playfully refer to as the “Double Irish” and the “Dutch Sandwich”. The IT bruiser’s Ireland-based European operation, which accounts for 92 per cent of Google Inc's non-US profits, takes advantage of Irish tax laws to shuttle profits entirely legally into and out of subsidiaries there, largely escaping the country’s 12.5 per cent income tax.

That’s right. Legally. I’d like to get that straight. In no way am I suggesting that Google is doing something unlawful. What I am accusing one of the world’s richest corporations of doing is behaving in a way that is nothing short of morally repugnant.

Repugnant, because - just in case we forget – it amounts to swiping money away from the public purse, not just in Ireland but in the UK (which represents the search giant’s second-biggest market worldwide), and in other EU countries that are struggling to tackle a collective budget deficit of 868 billion euros.

It is swiping money that might otherwise be spent on schools, hospitals, benefits and much-needed ‘frontline’ services for tax-paying citizens.

Do I sound angry? Good. Because I am. And so should you be. A quick run-through of the figures will tell you why.

Ordinary UK taxpayers on PAYE hand over tax at a rate of 20 per cent – 40 per cent on higher incomes. For corporations, the rate stands at 28 per cent.

The average rate of tax that Google has paid overseas in the last three years stands at just 2.4 per cent - the lowest of any of the top five IT firms in the US, according to regulatory filings posted in six countries.

Martin A Sullivan, a tax economist who formerly worked for the US Treasury, expressed his surprise at the figures in an article on Bloomberg.com.

“It’s remarkable that Google’s effective rate is that low,” Sullivan said. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 per cent.”

The sleight of hand is accomplished by funnelling money into island tax havens that levy no corporate income tax at all.

Tax laws in many of the world’s major economies allow mega-corporations to allocate the income of their many subsidiaries to these offshore, tax-free territories, while attributing their costs to the high-tax economies where they make their lucre - the ruse referred to as "transfer pricing".

And the company is not alone. As Google spokesperson Jane Penner was quick to tell Bloomberg, “Google’s practices are very similar to those at countless other global companies operating across a wide range of industries.”

She’s right, of course. The profits of social networking giant Facebook are siphoned off to the Cayman Islands. Microsoft too uses the 'Double Irish' to avoid European tax liabilities. But no one does it quite as well as Google.

The search giant’s European profits wind up with a subsidiary, Google Ireland Holdings, registered in Bermuda, taking in a brief stop-over in the Netherlands – the so-called “Dutch Sandwich” - to avoid yet more tax.

And once they’re in Bermuda, the trail goes cold. Because the entity to which they’re attributed is a registered as a so-called “unlimited liability company”, to avoid disclosure.

Google, a company dedicated to making humanity's cumulative knowledge available for all to see, has a few dirty secrets it doesn't want you to know.

So what of the facts we do know? Examining the public accounts, released in April, of subsidiary Google UK Limited, we discover the company paid just £600,000 in corporation tax last year, despite revenues of £1.25 billion - avoiding an estimated £100 million in tax.

For a company with a 90 per cent share of the UK search market, it seems somewhat surprising that little of its advertising revenue shows up in Google UK's accounts. Until, of course, you realise that's because 90 per cent of the firm's UK takings are channelled through Ireland.

"Administrative expenses" at the company's offices in London and Manchester take care of the rest. They rose by £21.6 million on the previous year's total of £177 million, eclipsing an increase of in revenue £19.8 million and resulting in a loss of £9.7 million.

Yes, you read that right. Loss. All legal, of course. But all wrong.

Avoiding tax isn't just a commercial thing. Or a legal thing. It's a moral thing. And that is what Google's cutesy little mantra "Don’t Be Evil" - a phrase born of the search firm's idealistic beginnings that doubtless haunts head honcho Eric Schmidt - is all about.

At a moment when ordinary people are being asked to “tighten our belts” and “do our bit” for the Big Society, maybe it’s about time some of society's biggest members followed suit.

Want to know where your pension, your job, your 'frontline services' went? Google has a least some of the answers. Search them.