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Wednesday, August 22, 2012

Google Legally Avoids Taxes

The world’s most popular search engine Google isn’t paying much tax in the United Kingdom, and of course the country’s Parliament is not very happy about it. In fact, Google has found a great way to avoid paying most of British taxes.

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The Parliament of the United Kingdom is currently thinking of dragging a company’s executive into the mother of all Parliaments to explain how Google manages to save so much in taxes, while generating massive annual profits.

The company paid as little as £6,000,000 in British taxes despite generating a profit of almost £400,000,000. The truth is clear and legal: Google does it via using its Ireland-based subsidiary having an agency agreement with Google UK. In other words, 90% of the company’s profits are transferred to Ireland, from where Google pays a host of fees, which include licensing charges to a Google-owned Bermuda company. In the end, there is almost nothing left of the profits that could stay in the United Kingdom to be taxed.

Google’s current strategy, dubbed the “Double Irish” method, is absolutely legal at the moment. It isn’t as if Parliament had no idea what the search giant was doing. Two years ago, a report detailed the ins and outs of the company’s savings scheme and revealed that Google saved $3.1 billion in taxes within 3 years. The company has long been trying to reassure the British government that Google doesn’t need to change anything in the scheme, because taxes are only one piece of what the corporations can deliver to a local economy.

For example, Google claims that it paid “a substantial contribution” to the economy of the United Kingdom in the form of local, payroll and corporate taxes. Indeed, the company employed over a thousand employees, helped hundreds of thousands of startup businesses to grow on the Internet and invested millions of pounds to support new tech businesses in East London, let alone Google Panda.

In other words, the idea Google tries to deliver to the UK Parliament is “leave us alone we behave well”. But the government understands it as the words of the mighty and rich corporation which simply doesn’t want to pay tax. In response, Google claimed that it would readily pay a larger rate of tax – this time last year – but only if the law really required the company to do so.

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