A November 21 filing made by a Google (NASDAQ:GOOG) subsidiary in the Netherlands revealed that the company avoided paying $2 billion worth of income taxes to several European governments in 2011. According to the documents seen by Bloomberg, Google funneled $9.8 billion in revenue, or approximately 80 percent of its pre-tax profits, to a Bermuda shell company.
This is not a new strategy for the company; the amount of money Google has moved to its Bermuda unit has doubled in size over the past three years.
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Are Google’s Actions Illegal?
Governments in France, the United Kingdom, Italy, and Australia are investigating Google’s tax practices as means to increase state revenue during a hard economic climate. As the European Commission’s tax commissioner Algirdas Semeta said at a conference in Brussels, tax evasion and avoidance cost the European Union 1 trillion euros, or $1.3 trillion, per year.
To avoid European income tax rates that range from 26 percent to 34 percent, Google has used two tax shelter strategies known as the Double Irish and the Dutch Sandwich, as Bloomberg reported. By channeling funds to a unit located in Bermuda through subsidiaries in Ireland and the Netherlands, the company arranged a tax rate of only 3.2 percent.