Google’s income shifting

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes

Excerpt:

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

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.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. 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 income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.

Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. 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.

See an interactive graphic on Google’s tax strategy

Comment: The simple solution to corporate income taxes is to not tax corporate income at all. Why?

• My views about not taxing corporate profits only pertains to income. Not property taxes. I believe corporations should pay property taxes
  
• This is perhaps not completely intuitive but once someone understands the simplicity of this statement, what follows will be clear! Corporations do not pay income taxes ... people do!
  
• Every expense that a corporation incurs ultimately gets passed onto the consumer! When executives rent a suite at the Superbowl, that expense gets deducted (is there is a business purpose), which is an expense, which reduces profit, which is in essence partially tax-payer funded entertainment
  
• Every consumer item is ladened with taxes paid to state, federal, and local authorities!
  

This helpful article makes the case for the abolishing of the Corporate Income Tax

Abolish Corporate Income Taxes - It hurts the economy more than it collects in revenue, and makes America uncompetitive.

If a corporation will face significantly lower taxes in another location, it will move there. It will also grow and become more profitable, so that it pays a larger total amount in taxes at a lower rate than it had been paying at a higher rate. If the U.S. wants to discourage corporations from leaving the country, it should make its corporate tax structure more appealing by abolishing corporate income taxes entirely.


Why abolish them instead of cutting them? Because then we could get rid of our exceedingly complex corporate tax law. If corporate tax rates were slashed from 35% to 25%, corporations would still have to pay for an army of accountants and lawyers to comply with the tax law and make sure they don't pay any more than required. It's not an easy task to discern what should be "taxable" income for a corporation – especially, what should be a deductible expense. Is interest on debt a legitimate expense? How do you calculate depreciation of assets? Should these vary from industry to industry? What about the CEO's high salary? According to J.Scott Moody, The Joint Committee on Internal Revenue Taxation stated in 1927 that "It must be recognized that while a degree of simplification is possible, a simple income tax for complex business is not."

And that's very true. A "simple" tax code wouldn't take into account certain factors which make it unfair to some. But a complex code just gives creates opportunities for corporations to dodge taxes through myriad breaks and deductions.

The blogger formerly known as Jane Galt wrote in 2002,"The Corporate Income Tax brought in $204.9 billion in 1998. My tax professor (a Democrat) estimated the cost of corporate compliance in that year to be $300 billion. That's just the direct cost -- what corporations paid tax lawyers and accountants." So according to this professor, it cost corporations $500 billion to pay the tax, though the government received barely $200 billion. And the tax code is much larger today than it was in 1998. While the professor's estimate may have been too high, there is undeniably tremendous waste of labor and money that the corporation could have used to grow their business.

Instead of this waste, we could simplify the system by letting the entire tax fall on the shareholders instead. After all, they are already taxed on their dividends, capital gains, and interest from their investments; these are part of their personal income taxes. The entire corporate tax structure does nothing but create a complicated and expensive layer of tax law on top of it on top of what shareholders are already paying in individual income taxes. In other words, when corporations pay taxes, that means less income for its shareholders, which means they effectively paid the tax anyway. Why don't we just have them pay it without the corporate tax rigmarole?

Here's how it could be done. First, tax dividends, capital gains, and interest all at the same flat rate, so that corporations and shareholders wouldn't let taxes affect their decision-making on when to buy or sell stock or pay dividends. Second, devise a system similar to employer withholding of the income tax on wages, applying it to the paying of dividends. This ensures that foreign investors have also paid the tax, and it deters tax evasion. Third, for the same reasons, devise if possible similar withholding taxes for interest income and long-term capital gains, making sure they are indexed for inflation.

By replacing an army of high-priced lawyers and accountants with a few clerks to handle tax withholding for dividend checks, Corporate America will save hundreds of billions of dollars – money with which they can expand their business and provide jobs, lower prices, or return to shareholders, where the money will be taxed. It will also lower the cost of production, making American goods more competitive overseas.