Google to repatriate intellectual property tax status to US
6 Jan 2020
Google owner Alphabet has signalled it intends to amend its international tax strategy, in line with the OECD’s proposals to require that profits are taxed in the locations where they are created
6 Jan 2020
The tech company’s parent, Alphabet, has said it will no longer be using the so-called ‘double Irish’ and ‘Dutch sandwich’ tax arrangements, which have been widely used by US multinationals over the last decade and have been subject to strong criticism.
However, changes to corporation tax made since Donald Trump took over the presidency in the US have seen multinationals revising their tax models and switching intellectual property (IP) registration back to the US from offshore low tax jurisdictions.
Under the double Irish, multinationals shift taxable income from an operating company in Ireland to another Irish-registered firm in an offshore tax haven like Bermuda or the Cayman Islands, via an intellectual property (IP) licensing scheme.
Dutch tax law allows untaxed profits to be moved to a tax haven without incurring a withholding tax, so a Netherlands-based company is used in the middle of this ‘sandwich’.
Corporate filings in the Netherlands show that in 2018 Google channelled €21.8bn (£18.5bn) to Google Ireland Holdings (an Ireland-registered subsidiary) in Bermuda – where companies pay no corporate income tax – via its Dutch subsidiary. This was up from €19.9bn in 2017.
The tax strategy meant Google had an effective tax rate in the single digits on non-US profits, estimated at around a quarter the average tax rate in overseas markets.
Meanwhile, estimates suggested US multinationals were holding more than a $1 trillion in profits offshore via mechanisms such as the double Irish and the Dutch sandwich by the end of 2017.
In recent years, there have been sustained efforts to close such loopholes, with Ireland announcing in 2015 that it would cease arrangements allowing locally headquartered companies to shift funds between overseas Ireland-registered companies by the end of 2020.
In its Dutch filing, Alphabet indicated that it intends to conform to the new Irish rules. It stated: ‘A date of termination of the company’s licensing activities has not yet been confirmed by senior leadership, however management expects that this termination will take place as of 21 December 2019 or during 2020.
‘Consequently, the company’s turnover and associated expense base generated from licensing activities will discontinue as of this date.’
A Google spokesperson has confirmed the change in its licensing structure in line with international rules and stated: ‘We’re now simplifying our corporate structure and will license our IP from the US, not Bermuda.
‘Including all annual and one-time income taxes over the past 10 years, our global effective tax rate has been over 23%, with more than 80% of that tax due in the US.’
Commentators have suggested that the impact of Google’s actions on the Irish economy are likely to be minimal, as the bulk of the company’s taxable IP was located outside the country for tax purposes.
Google is one of the largest employers in Ireland, and in 2017, Google Ireland recorded a profit of €1.2bn on revenue of €32.2bn and paid €167m in corporation tax, according to filings.