Google parent Alphabet Inc would no longer use an intellectual property licensing scheme, known as the “Double Irish, Dutch sandwich,” which allowed it to delay paying US taxes, 2018 tax filings show.
A Google spokesman on Tuesday confirmed that it would scrap the licensing structure, saying this was in line with international rules and followed changes to US tax law in 2017.
Dutch filings, which were seen by reporters, showed that in 2018, Google moved 21.8 billion euros (US$24.5 billion) through its Dutch holding company to Bermuda, up from 19.9 billion euros in 2017.
Google said it would end the practice after last year.
“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 31 December 2019 or during 2020,” the Dutch filing said.
“Consequently, the company’s turnover and associated expense base generated from licensing activities will discontinue as of this date,” the filing with the Dutch Chamber of Commerce added.
Google, like other multinationals that make use of international tax minimization strategies, has always said it pays all its taxes.
“We’re now simplifying our corporate structure and will license our IP [intellectual property] from the US, not Bermuda,” a spokesman said in a statement.
“Including all annual and one-time income taxes over the past 10 years, our global effective tax rate has been over 23 percent, with more than 80 percent of that tax due in the US,” he said.
For more than a decade, Dutch, Irish and US tax law allowed Google to enjoy an effective tax rate in the single digits on its non-US profits, about one-quarter the average tax rate in its overseas markets.
The subsidiary in the Netherlands was used to shift revenue from royalties earned outside the US to Google Ireland Holdings, an affiliate based in Bermuda, where companies pay no income tax.
The tax strategy was legal and allowed Google to avoid triggering US income taxes or European withholding taxes on the funds, which represent the bulk of its overseas profits.
Under pressure from the EU and the US, Ireland in 2014 decided to phase out the arrangement, ending Google’s Irish tax advantages this year.
The Tax Cuts and Jobs Act of US President Donald Trump administration, which came into effect in January 2018, ended the reason for US companies to hoard foreign profits offshore. Now profits that have been made and taxed abroad are not subject to taxation when returned to the US.
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