SEC uncovered Google's tax sheltering scheme that allowed the company to avoid paying taxes on $58.3 billion of its overseas profits in 2015.
Alphabet.Inc's Google (NASDAQ: Alphabet Class A [GOOGL]) has joined Apple (NASDAQ: Apple [AAPL]) in the series of legal conflicts over the amount of tax the American tech giants pay abroad. According to Bloomberg's report based on the first data available from the Dutch newspaper Het Financieele Dagblad, Google has managed to shelter more than $3.6 billion in taxes worldwide in 2015 by moving a big part of its profits generated outside of the United States through its 10-year old Dutch subsidiary that has no actual employees.
The U.S. Securities and Exchange Commission said that the company moved its international profits through the Google Netherlands Holding BV to a shell company in Bermuda, which Google used as a tax haven. In detail, as explained by The Verge, the money generated from Google's advertising revenues first passed through its Irish subsidiary that is responsible for all company's ads proceeds outside the U.S. and has historically low corporate tax. Then, the money were sent to another low-tax subsidiary located in the Netherlands. The last destination was Google's Bermuda-based subsidiary, technically belonging to the Irish office, that claimed ownership of all the profits. The office in Bermuda also had no employees whereas it offered an unbeatable corporate tax rate of 6.4%.
This complex scheme that involved two Irish and one Dutch subsidiaries was nicknamed the "Dutch Sandwich". However, Google consistently claimed that there was nothing wrong with its tax operations:
"Google complies with the tax laws in every country where we operate," the company said in a statement in February, as reported by Bloomberg.
The total amount of sheltered profits in 2015 was $58.3 billion, which is 40% more than in the previous year. The tax loophole popular among big American companies was uncovered by the authorities a few years ago, with the Irish government officially forbidding the "Dutch Sandwich" in 2015. Nevertheless, the companies that were already using the loophole were given time before 2020 to stop these activities.
Google, along with Apple and other big American companies, hopes that Trump's administration will create a more welcoming environment for big corporations to work in the U.S. tax-wise, as the president-elect has repeatedly spoken of establishing a one-time corporate tax of 10%.