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Google cut its 2015 tax bill by $3.6 billion using the infamous Dutch Sandwich loophole

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Google has sheltered as much as $58.3 billion in overseas profits

Google was able to shave $3.6 billion from its 2015 tax bill by relying on an elaborate system of loopholes known as the “Double Irish" and “Dutch Sandwich,” according to a report from Bloomberg today. The loopholes — infamous among US corporations — effectively allow companies as large and profitable as Google to shuffle profits through subsidiaries in low-tax countries like the Netherlands and Ireland, and then onward to tax havens like Bermuda and the Cayman Islands. In this case, Google moved $15.5 billion worth of euros to a Bermuda shell company, cutting its tax rate outside the US to 6.9 percent last year, according to regulatory filings in the Netherlands that were obtained by Bloomberg.

The structure of the Double Irish and Dutch Sandwich is complex. It begins with international profits — in this case Google’s advertising revenues outside the US — being siphoned through an Irish subsidiary, where corporate tax rates are historically low. This subsidiary, known as Google Ireland Limited, then sends the money to a Dutch subsidiary in the Netherlands, which also enjoys low corporate tax rates. From there, Google moves the money to a Bermuda-based company called Google Ireland Holdings Unlimited, which was granted the right to license Google intellectual property so that it can claim ownership of the profits. It has no employees. The two Irish subsidiaries and the Dutch intermediary is where the tax loophole derives its nickname.

According to filings Google made with the Dutch Chamber of Commerce this week, the company has moved 40 percent more of its profits in 2015 using this system than it did in the year prior. In total, it’s estimated Google has sheltered as much as $58.3 billion from US taxation, Bloomberg notes, citing parent company Alphabet’s SEC filings. And despite the Irish government having closed the Double Irish loophole last year, companies still currently employing it to shelter overseas profits have until 2020 to stop. “Google complies with the tax laws in every country where we operate,” the company told Bloomberg in a statement

These kinds of loopholes have attracted increasing scrutiny of late as Apple gears up for a prolonged battle with the European Union over its use of similar practices in Ireland. The iPhone maker owes Ireland $13.6 billion after an August ruling by the European Commission, the EU’s antitrust enforcer, determined Apple had been underpaying taxes in the country for the last 13 years. Ireland, however, doesn’t want to collect it, out of fear it may dissuade Apple and other big tech companies from investing in the country in part due to its low tax rate. Apple, on the other hand, is trying to frame its fight against the EU has a matter of principle, seeing itself as a singled out victim that regulators would like to make an example of. Apple CEO Tim Cook even called the EU’s action “total political crap.”

Notably, many Silicon Valley leaders, Cook included, met with President-elect Donald Trump earlier this month to discuss, among other topics, reductions in the US corporate tax rate. Trump has often said that he would make it easier for American corporations like Apple and Google to more easily repatriate earnings, so as to reinvest those earnings into US manufacturing jobs. It’s unclear exactly how that will work, and if Silicon Valley will play along or choose instead to continue fighting its regulatory battles overseas to keep profits from being taxed outside single-digit rates.

- Source: Bloomberg