Google Uses Offshore Tax Havens To Lower Its Tax Rate To 2.4 Percent

Last year, the Wall Street Journal reported that some multinational corporations — including General Electric and Pfizer — lowered their effective tax rate by more than 20 points thanks to the use of offshore tax havens and the loophole ridden corporate tax code.

But those companies don’t have anything on Google. According to a Bloomberg News report, Google, thanks to a setup in which it moves its profits to Ireland and countries in the Caribbean, has paid a 2.4 percent tax rate over the last three years, avoiding $3.1 billion in taxes:

Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries…The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax.

“It’s remarkable that Google’s effective rate is that low,” said Martin Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.”

The U.S. corporate tax rate is 35 percent. But Google not only avoided U.S. taxes with its scheme, it also dodged taxes in the United Kingdom (where the statutory corporate tax rate is 20 percent). Facebook is reportedly cooking up a similar tax plan right now.

Despite having a relatively high statutory corporate tax rate, the U.S. collects little corporate tax revenue due to the prolific use of tax havens and the needless subsidies the U.S. taxpayer provides to mature, profitable industries. In fact, “the U.S. Office of Management and Budget estimates corporate tax receipts will account for just 7.2% of federal revenues in 2010, with large corporations contributing less than one-sixth as much as small business and individual taxpayers to the Federal Treasury.” Eighty-three of the 100 largest publicly traded U.S. corporations and 63 of the 100 largest federal contractors have at least one subsidiary in a tax haven.

Since the Obama administration came into office, it has been trying, along with some congressional Democrats, to close some of the more egregious tax loopholes that allow corporations to sling profits all over the world and never pay taxes on them. But they have been stymied at every turn by Republicans, working with the Chamber of Commerce and other Big Business groups, who are content with allowing corporations to do all they can to get around paying the tax rate on the books.