Google makes resolution to give up Irish tax loophole

Google’s “Double Irish, Dutch sandwich” strategy allows the company to move profits between holding companies registered in Ireland to reach tax havens through an IP licensing scheme based in Bermuda.

Google has enjoyed single-digit tax rates on international profits for many years on account of the quirks of Irish, American and Dutch tax laws, representing approximately a quarter of its average tax rate in other overseas markets. Dutch filings seen by Reuters showed that in 2018 Google channelled €21.8bn to Google Ireland Holdings Unlimited (an Ireland-registered subsidiary) in Bermuda – where companies pay no corporate income tax – via its Dutch subsidiary - a figure up from €19.9bn in 2017.

This strategy - which was entirely legal - allowed Google to delay paying US income tax or EU withholding tax on the bulk of its international profits.

However, international efforts over the last few years to impose an adequate “Google tax” have resulted in some changes to tax rules, forcing Google and similar companies to rethink their tax strategy. Ireland bowed under pressure from the US and EU to close the tax loophole in 2014, preventing locally headquartered companies from shifting funds between overseas Ireland-registered companies, while adjustments to how corporate tax is collected in the US are likely to encourage companies to return international profits to the US.

Google said that it would end the practice after 2019, with its Dutch filing stating: “A date of termination of the Company’s licensing activities has not yet been confirmed by senior leadership, however management expects that this termination will take place as of 21 December 2019 or during 2020. Consequently, the Company’s turnover and associated expense base generated from licensing activities will discontinue as of this date.”

According to Reuters, Google’s Bermuda filing for 2018 stated that the company would stop licensing IP or holding debt securities, although it would continue equity investment operations.

A Google spokesperson has confirmed that the company will scrap its licensing structure in line with international rules: “We’re now simplifying our corporate structure and will license our IP from the US, not Bermuda. Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23 per cent, with more than 80 per cent of that tax due in the US.”

Google has always maintained that it pays all its taxes. The company has been using the same “Double Irish” tax minimisation arrangement as Facebook, Apple, IBM, Adobe, Airbnb and many other tech companies.