Richard Murphy’s on a roll, discussing the ethics of computer companies who park profits in Eire. The latest is Apple going into secrecy mode. Aaah – ever it was so. So how’s about this:
Back in December 2005, the Irish Times reported Google as attributing royalty payments in Eire such that Google is making annual tax savings of around €100 million. Eire doesn’t get much out of the deal either. The same report says:
An effect of the arrangement is that Google Ireland, the operating company, made an after-tax profit of only €2.74 million on a turnover of €603 million. It had operating expenses of €359 million which are understood to include the royalty payments to the other Irish company. Google Ireland paid Irish corporation tax of €1.6 million.
Now let’s turn to Google’s 10-K. This is the financial annual return filed in the US where companies detail all manner of interesting information. On page 99 0f the 2005 return:
The American Jobs Creation Act of 2004 (the Act), enacted on October 22, 2004, provides for a temporary 85% dividends received deduction on certain foreign earnings repatriated during either 2004 or 2005. We did not elect this provision in 2004 nor in 2005. The deduction would result in an approximate 5.25% federal tax rate on the repatriated earnings. To qualify for the deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan established by our chief executive officer and approved by our board of directors. Certain other criteria in the Act must be satisfied as well.
No provision has been made for federal income taxes on $533.7 million of gross cumulative unremitted earnings through December 31,2005 of our foreign subsidiaries since we plan to indefinitely reinvest all such earnings. If these earnings were distributed to the U.S. in the form of dividends or otherwise, then we would be subject to U.S. income taxes of approximately $208.9 million (subject to an adjustment for foreign tax credits).
Richard contends that Eire’s ‘tax haven status’ doesn’t create real jobs. On this occasion, I have to disagree. Among other folk, Google Ireland is looking for a tax accountant. Over in Mountain View (Google’s head office), there’s a tastier tax job to be had. So there you have it.
Like every other company, Google declares such tactics to be in the best interests of the business. If you agree with Richard’s position, then Google’s mantra: “Do No Evil” would seem to be capable of all sorts of interpretation. Some might for instance, go so far as to say that paying tax is evil. I’m not in that camp.
If you were selling any other good or service to which a royalty attaches, would you really pitch the royalty element as high as Google apparently does? I doubt it. And given Google’s secretive culture, it’s only a matter of time before it follows Microsoft and Apple’s lead. But they won’t be able to avoid reporting in the US. Richard and I will be watching. 
Kerrching!
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