Google pay taxes on all US income (not to mention payroll taxes, consumption taxes, etc.). There is a massive miscomprehension of these tax stories as they portray Google, Apple etc. avoiding all taxes when this is not the case. The income housed in Bermuda is from non-USA receipts, each of which have already passed through a local tax jurisdiction from wherever they were generated. They are not avoiding any taxes.
The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is difficult to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
Many large corporations that hold large cash balances keep them offshore. Around 75% of Apple's large cash holdings are held offshore. They have already paid tax on that money. It is the US naturalization laws that are broken, and the perception that Google, Apple et al aren't paying taxes or somehow avoiding them.
The best thing the US Government could do would be to institute another repatriation tax holiday. There is precedent for it as happen in 2004. As much as a trillion dollars could make its way back into the US economy if a deal could be worked out - a private mini-stimulus that the economy of 2 years ago really needed.
1. Companies are not necessarily double-taxed on foreign profits when they enter the US - they can actually claim a foreign tax credit to offset their US taxes. See here: http://www.irs.gov/pub/irs-soi/06itcorptaxsnap.pdf. There are issues with this - you cannot have a tax credit that results in a refund - but it is not a given that all profits are double-taxed.
2. Google (along with a lot of other companies) utilizes the so-called "Double Irish" (http://en.wikipedia.org/wiki/Double_Irish_arrangement) - and this, specifically, is a tax avoidance strategy. Thus, it is a misrepresentation to say that they are not avoiding taxes. Granted, they have passed through one local tax jurisdiction (Ireland) on their way to Bermuda, but that means that a lot of other countries, in addition to the US, do not get access to the taxes from companies that are operating in their countries.
3. US companies are already holding enormous amounts of cash on their books - but that hasn't lead to large-scale increased capital spend.
4. On 2004: the argument then (as now) was that these funds would result in jobs and new capital being spent. But that didn't happen. Instead most of the money was just paid out in dividends which really only affects, a big scale, people in the 1-2% incomes who get a lot or most of their income from dividends.
A red herring, I feel. If tax had been paid properly as you suggest then they could hold it in jurisdictions where it was generated, such as the UK. Instead it is moved to places like Bermuda through byzantine schemes to minimise the amount paid in the jurisdictions where the income was generated.
I'm sure you'd like the money to be "repatriated" to the US, but I'd like just some of it to stick around in the UK and Europe to pay for roads, schools, hospitals (and nuclear submarines) first.
Google paid £6M on tax on a turnover of £395M in the UK - given that they don't have that much operations in the UK that suggests they they have been avoiding tax on their UK operations by manipulating where they choose to make profits so that the profits occur offshore rather than in the UK.
Nothing particularly unusual or illegal about this.
So they have been "avoiding" tax - but there is nothing illegal about that, or from my perspective, particularly immoral about it.
£6M in corporate income tax, which is only one of many taxes (and usually the smallest component) that a corporation pays.
For eg. they would have collected a 20% VAT (consumption tax in the rest of the world) - which is another £80M, a 13.8% national insurance contribution, which would work out to be approx another £40M, and then on top of that a payroll tax.
I am not familiar with the other payroll tax rates in the UK but it is similar in most other countries - the three or four different tiers. In the USA payroll taxes are 5-6x larger than corporate income taxes. Add them up for Google in the UK and you get to £130-140M contributed from a gross of £395M - a very different story to the headline figures that are being argued.
edit: forget the figures, I don't know the UK tax system enough to even guesstimate, but the tl;dr is that corporate income tax is the smallest of a number of tax components that a corporation pays and arguing by taking out corporate income tax figures alone is misleading. This is the point that Google attempted to make.
For eg. they would have collected a 20% VAT (consumption tax in the rest of the world) - which is another £80M, a 13.8% national insurance contribution, which would work out to be approx another £40M, and then on top of that a payroll tax.
Consumer VAT and consumer income tax are not tax paid by a company, and it's disingenuous to suggest that 'a corporation pays'. They merely collect them from the customer/employee for the government, it's not as if the corporation contributes anything on top of that. They do contribute to NI as you mention, and local business rates on property in the UK at least, but the vast majority of revenues can escape taxation, and I don't think customer VAT, and employee IT can be considered paid by the employer, they are paid by the customer or employee.
There are of course many benefits to having a company setting up in your country (the aforementioned VAT and income tax receipts from the employees, rates, and jobs generated), but companies offshoring profits and shopping for tax jurisdictions by setting up fake subsidiaries whose sole purpose is to evade tax is a huge problem for all western countries, and not one they can address with current tax law. That's the reason that many receipts in Europe nowadays bear the legend 'S.a.r.l, Luxembourg'. All major corporations from Apple, to Amazon, to Google do this to some extent, and it results in tiny countries like Luxemburg collecting huge amounts of tax (in proportion to their size, and the true number of business who truly transact business there (as opposed to claiming they do)), simply because they're willing to give corporations the lowest international rate,and let them set up shell companies to funnel online revenue through the tax haven.
VAT is paid by the consumer, not by Google. The best you can argue is that maybe if people had not spent that money with Google they might have spent it on goods that do not have VAT levied on them. That is a pretty weak way to claim they are responsible for £80 million in additional tax revenue.
> Google pay taxes on all US income (not to mention payroll taxes, consumption taxes, etc.). There is a massive miscomprehension of these tax stories as they are portrayed as Google, Apple etc. avoiding all taxes when this is not the case. The income housed in Bermuda is from non-USA receipts, each of which have already passed through a local tax jurisdiction from wherever they were generated. They are not avoiding any taxes.
Saying they've paid anything in the "local tax jurisdiction[s]" isn't quite true. In most cases they've passed through Ireland and the Netherlands, even if the income is from other European countries. In most cases they haven't paid any corporation tax at all on the profits made in the local countries.
Take Starbucks in the UK as an example. They had sales of £400m but paid £0 corporation tax by ensuring the company didn't make a profit in the UK. It paid various license fees to foreign sister companies, and even purchased its coffee from Starbucks Switzerland to help offset profits. £0 profit in the UK, £0 corporation tax due.
> The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is really hard to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
They wouldn't be double taxed, the USA have double tax treaties with many countries. The reason they keep it off shore is because they're waiting for one of those amnesties that would allow them to bring the cash home to the US and pay far less than they would have outside the amnesty.
Example with no amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues by using "license fee", loan or other perfectly legal schemes.
Google move money from Ireland to Bermuda tax free.
Google move money back into the US and pay (to the US) the difference between tax due originally and tax already paid (in Ireland).
Net result is Google pay the standard 35% (or whatever it is in the US) tax on the money. It's just a chunk of it goes to Ireland rather than the US.
Example with amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues.
Google move money from Ireland to Bermuda.
US announce amnesty rate of 5.625% and Google moves money back to the US paying a total of 18.125%. That's a whole lot less than 35%.
It's exactly those amnesties that mean large US corporations can do this. Without them there would be little reason to hoard money offshore as it could never get back to the US without the full amount of tax having to have been paid on it.
I agree that tax amnesties are stupid, but you've got the logic wrong. When they've had them in the past, proponents were shocked at how few corporations took them up on it.
The trouble is that there is no advantage to bringing the money back. If you have your money in Bermuda, you can still invest it. You can buy securities, or you can loan it back to your sister companies in higher tax jurisdictions, and then the interest they pay you on it is generally tax deductible in the higher tax jurisdiction. The loan gives you all the benefits of having the money with none of the taxes. In that way they do bring the money back -- they just don't pay the taxes.
Even if they brought it back through the tax amnesty, what happens then? They've now got an extra billion dollars they didn't pay taxes on, so now they go out and invest it and the returns are taxable in the higher tax jurisdiction. Who thinks they're that stupid, when the alternative is to invest the money in the exact same investments but have the profits go to the sister company in the lower tax jurisdiction?
I remember reading that the US Congressional sub-committee report into a possible amnesty found that approx 50% of the money was back in the USA via securities and loans anyway.
With the 2004 amnesty - you are right - but there are a few things you can't do with offshore funds - which is why this time Cisco, Apple and the big pharma co's are lobbying for an amnesty
You can't do acquisitions, you can't do a share buyback and you can't pay a dividend.
If you are managing smaller reserves it makes sense to leave it offshore - but with larger reserves such as with Apple investors want you to do more with it (they want to _get paid_)
>If you are managing smaller reserves it makes sense to leave it offshore - but with larger reserves such as with Apple investors want you to do more with it (they want to _get paid_)
If they hold stock in a company whose share price has appreciated as a result of accumulating undistributed profits and they want money, they can always sell some of their shares.
And are you sure they can't do acquisitions? What stops them borrowing the acquisition money from their sister company, or doing the merger for stock?
Nice spin. Regardless of your angle, there is no "miscomprehension of these tax stories", but it is the case the Google does its best to avoid paying taxes in all countries except the US.
Considering that over 50% of Google's revenues are non-US, I personally find appalling how they avoid paying little-to-no taxes in other countries. Here are the self-proclaimed "don't do evil" and "down with Wall St." institutions acting as "vampire squids".
You should read about transfer pricing. In many cases it is entirely possible to assign where a large firm's income is made for tax purposes by internally transferring intellectual property.
On the point of why would tech companies want to do this instead of helping the community, I argue it may actually help California. Instead of doing the responsible thing and moving the firm to somewhere with a lower state corporate tax rate, the firm can simply avoid taxes. This keeps employees in the area contributing to state income and property taxes. In a world or multinationals, I am not certain corporate income taxes make sense.
I have first hand experience with transfer pricing. My old startup had offices in Australia, India and the USA, income from all over the world, etc.
These tax systems also apply to the smallest of startups operating online. Its just that Google can afford the best advice and are the biggest target.
My concern is that further changes to tax laws that are aimed at Google and Apple could end up affecting smaller companies and startups as collateral damage.
Google and Apple will wriggle their way out of any changes to transfer pricing laws, as they usually always do, while small startups and businesses might not.
While I agree with the general sentiment of your argument, it's still wrong since Google would get a credit for foreign taxes paid. Your post is moot due to this fact, aka reality. :)
The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is difficult to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
Many large corporations that hold large cash balances keep them offshore. Around 75% of Apple's large cash holdings are held offshore. They have already paid tax on that money. It is the US naturalization laws that are broken, and the perception that Google, Apple et al aren't paying taxes or somehow avoiding them.
The best thing the US Government could do would be to institute another repatriation tax holiday. There is precedent for it as happen in 2004. As much as a trillion dollars could make its way back into the US economy if a deal could be worked out - a private mini-stimulus that the economy of 2 years ago really needed.