Google investigated for tax evasion

The US Internal Revenue Service suspects that the “do no evil” search engine, Google, might have been playing a game of tax evaders and funnelled shedloads of dosh into offshore subsidiaries.

The tax man is taking a dim view of the way Google appears to have valued software rights and other intellectual property it licensed in foreign parts.

Google has been asked to show its paperwork about its offshore deals after three acquisitions, including its $1.65 billion purchase of YouTube. By transferring rights to other countries, Google allegedly attributed earnings to foreign units that pay lower taxes,.

According to the Sydney Morning Herald, Google had cut its taxes by $3.1 billion in the three years prior using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Amongst the financial geniuses, who bought us the world economic crisis, Google cut its worldwide tax bill by about $1 billion a year using a pair of strategies called the “Double Irish” and “Dutch Sandwich”. These move profits through units in Ireland, the Netherlands and Bermuda.

This meant that it could report an effective tax rate of 18.8 percent in the second quarter, less than half the average combined US and state statutory rate of 39.2 percent.

An Internal Revenue Service spokesman said it was all just a routine inquiry, but refused to say much more.

The SMH reports Bloomberg as saying US companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries in which they have paid no federal income taxes. Meanwhile Google, Cisco, Pfizer, Apple and Microsoft are lobbying the US Congress for a tax holiday on bringing home those profits.

The Obama administration does not think that is a good idea when the mood of the country is against tax preferences for various industries and millionaires.