Fascinating article on the strategies employed by multinational technology firms to minimise corporate income taxation by funneling income into tax havens:
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 per cent, the lowest of the top five US technology companies by market capitalisation, according to regulatory filings in six countries.
Income shifting commonly begins when companies like Google sell or license the foreign rights to intellectual property developed in the US to a subsidiary in a low-tax country. That means foreign profits based on the technology get attributed to the offshore unit, not the parent. Under US tax rules, subsidiaries must pay “arm’s length” prices for the rights – or the amount an unrelated company would.
In this case, the US-developed tech is licensed to an Irish holding company, which sublicenses to another Irish entity, where 88 per cent of global advertising income is derived. But 99 per cent of that income is shifted into Bermuda, where the holding co’s “effective centre of management” (two nominee directors out of a Bermuda law firm) is located.
