CREDIT: (Credit: AP)
Thanks to tax havens and loopholes in international tax laws, Google paid a 1.1 percent tax rate last year in Britain. The tech giant logged $4.9 billion worth of British sales yet paid just $55 million in U.K. taxes, according to Reuters.
The company’s tax avoidance scheme is entirely legal and relies on subsidiaries based in Bermuda. The Bermudan company owns the legal rights to Google’s intellectual property and charges licensing fees for that technology to the company’s divisions in the U.K. and elsewhere. The end result is a lawful sidestepping of tax rules around the world.
Google isn’t alone in the corporate tax avoidance game. Apple came under fire in the spring when a Senate investigation revealed it routinely pays effective tax rates below 1 percent on its international sales. FedEx paid a 4.2 percent rate from 2008-2012, yet recently hosted an event dedicated to tax reform that would lower corporate rates. As a whole, large companies averaged a 12.6 percent effective tax rate in 2010, which is a lower rate than what the the median middle-class family paid.
The current system of international business tax law encourages countries like Bermuda, Ireland, Luxembourg, and others to facilitate schemes like these.
International leaders have signaled throughout 2013 that reforming that system is a high priority, but most reports indicate those efforts still center on a territorial tax system that is inherently vulnerable to the race-to-the-bottom thinking that’s led to the tax havens Google, Apple, FedEx, and so many others exploit. One alternative might be to make companies pay taxes where their products are actually consumed.