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How Corporations and the Wealthy Avoid Taxes

Linked by Paul Ciano on December 17, 2017

Gabriel Zucman, The New York Times:

In 2003, a year before it went public, Google (now a multinational conglomerate known as Alphabet) began a series of moves that would allow it to obtain favorable tax treatment in the future.

First, it transferred ownership of intellectual property related to its all-important search and advertising technologies to an entity named Google Ireland Holdings.

Why Ireland? Because not only did it have favorable corporate tax rates, its regulations also allowed Google Ireland Holdings to incorporate there but be “managed” in Bermuda.

Google Ireland Holdings then created another Irish subsidiary, Google Ireland Limited, and granted it a license to use the technology now owned by the Irish parent company.

Under this arrangement, which as far as we know is still in place, it is Google Ireland Limited that actually licenses the tech of Google’s main business to all the Google affiliates in Europe, the Middle East and Africa. (Google has a similar offshoot in Singapore that covers business in Asia).

That entity in turn moves its profits to Bermuda via a royalty payment to the Google Ireland Holdings.

See where this is going? In 2015, $15.5 billion in profits made their way to Google Ireland Holdings in Bermuda even though Google employs only a handful of people there. It’s as if each inhabitant of the island nation had made the company $240,000.

In doing this, Google didn’t break the law. Corporations like Google are simply shifting profits to places where corporate taxes are low.

Thankfully, Ireland has announced it will close the “double Irish” loophole that Google used, and arrangements that take advantage of that loophole must be terminated by 2020. But similar strategies will be used as long as we let companies choose the location of their profits.

According to the latest available figures, 63 percent of all the profits made outside of the United States by American multinationals are now reported in six low- or zero-tax countries: the Netherlands, Bermuda, Luxembourg, Ireland, Singapore and Switzerland. These countries, but above all the shareholders of these corporations, benefit while others lose.

My colleagues Thomas Torslov and Ludvig Wier and I combined the data published by tax havens all over the world to estimate the scale of these losses. The $70 billion a year in revenue that the United States is deprived of is nearly equal to all of America’s spending on food stamps. The European Union suffers similar losses.

As a recent UN study said:

As firms become bigger and more profitable, they are able to hire vast armies of lobbyists and capture regulators and elected representatives, securing generous government subsidies and lax antitrust enforcement, which in turn allow them to become bigger and more profitable. They are also better able to use intellectual property laws in their favor, extending the life of patents to protect their market domination, and hire better lawyers to avoid paying their fair share of taxes. These mechanisms, the authors argue, have essentially made the world’s biggest firms into a “rentier class.”

Via Doctorow.

Paul Ciano

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