Google Saves Billions in Taxes by going Offshore
Save Tax Money with Google’s Offshore Secrets
The coming century will be one of the global entrepreneurs. Those who are able to leverage technology, currency arbitrage, and internationalization to compete with wasteful corporations can potentially amass great wealth. Today we will discuss Google’s Offshore incorporation strategy!
If you own or run a business, incorporation is the base upon which the rest of your business is built. It also allows for anyone to set up a quick, easy and inexpensive flag outside of your home country. For just a few hundred dollars, you can move from a domestic set up, to an international set up that can not only save you money but also help you avoid litigation and protect your assets.
How does Google save on taxes?
Google save billions on taxes each year using Flag Theory by establishing different flags of their business in strategic jurisdictions around the globe. Most Fortune 100 companies have a structure designed to minimize taxes (whether they do it for that ‘official reason’ or not), but few go to the lengths of Google.
This type of set up demonstrates that the best and brightest tax experts in the world don’t work for big 4, or have a private practice; they work for private enterprises such as Google or GE – who despite making billions in profit, actually had a negative tax obligation in recent years due to tax liabilities.
How does Google do it exactly?
Through a Double Irish, Dutch tax sandwich, with Bermuda dressing. Now while that might seem like a tasty global lunch, it’s actually a cross border corporate structure that makes use of tax treaties transfer pricing, and other esoteric tax terms. It’s not that complicated though – see the chart below and my corresponding breakdown.
In short, Google has headquarters in Mountain View California, as well as bases in Ireland, an address in Netherlands, and an HQ in Bermuda.
Google Ireland Limited, employs almost 2,000 people in central Dublin and collected 88 percent of the $12.5 billion non-U.S. sales in 2009. These profits flowed quickly out to Bermuda.
Companies are constantly lambasted by the media for ‘hiding’ money away offshore. Those comments are made by simpletons who don’t understand the complete legality of such a setup. The IRS has approved Google’s set up, which shows that if properly established – it could be repeated.
How Can I Get A Set Up Like Google Offshore?
If your company is big enough, and it can offset the cost with savings, you might take a look at what Facebook and Google do.
- The CA-based Google pays Ireland Google fair market value for the intellectual property held by Google Ireland. Because the US and Ireland have a tax treaty, the profits are taxed at a lower rate than they might be if they stayed in the US.
- Then the Irish entity flows the profits to the Netherlands tax free to avoid triggering a greater tax in Ireland because another treaty between Ireland and the Netherlands ensures further favorable treatment of Google AdWords revenue.
- The Dutch entity acts primarily as a buffer against triggers of Irish withholding tax, but it the 2nd entity also maintains a separate entity for income derived outside of the United States.
- Some sort of headquarters is needed in Ireland. However, the CONTROL and MANAGEMENT must be done OUTSIDE Ireland, i.e. Bermuda. The Dutch entity avoids tax in Ireland, and simply sandwiches the Irish entities.
- The final resting place must be a jurisdiction which does not tax entities who operate within the jurisdiction. Cayman would be another acceptable country.
Another topic of note that isn’t related directly to tax, but does concern Google’s corporate structure, is the issuance of A and B class stock, where the voting rights are actually bestowed upon B class stock, making it, in fact, more powerful than the publicly issued class A stock.
What Can We Learn From This?
American companies will have a very complicated time setting up a corporate structure to legally minimize taxes, but it can be done through the planning of an international structure.
If you are considering an international structure you should not incorporate for tax reasons, as this is technically illegal (unless you are as big as Google; then it is Okay.) Realize that one of the biggest arguments for going offshore is for liability purposes. If you are to set up a Nevis LLC, a LLC in Belize, or BVI company – someone will actually need to travel to that country to sue you.
If you are an American, it might make sense to have both a US company and an international company – to easily separate the income. Talk with a tax planner to see how this can apply to your unique circumstances.
Control is everything. The most important part of any business deal is controlled. Once you start giving away equity in your business to expand, go public, take on venture capital, etc. – you need to maintain control at all costs. Issuing B class stock with voting rights is just one way of accomplishing this. Other methods include pyramidization, dual classes of stock, and cross holdings can all be effective in their own circumstances.
Google Offshore strategy is for legitimate business. For those who cry out against the offshore myths, know that the biggest and most important company in America structured at least partially offshore. Maybe you too can consider an offshore company – read more about the best countries to incorporate an online business, where to incorporate if I am a digital nomad and Asset Protection for the Internet Entrepreneur. If you want to know more about internationalization options you may consider joining our PT Society, a Do-it-yourself information center that can empower you to take an action.