While legal, multinational companies have been criticized for leveraging tax loopholes that allow them to reduce international rates. For the 2018 tax year, Google is no longer taking advantage of the notorious â€œDouble Irish, Dutch Sandwichâ€ given an alternative arrangement.
According to Reuters, the company told Dutch and Irish tax authorities in 2018 tax filings that it will â€œno longer use the intellectual property licensing scheme.â€ Googleâ€™s loophole â€œtermination will take place as of 31 December 2019 or during 2020.â€ As we explained last year:
The â€œDouble Irishâ€ loophole involves moving revenue from an Ireland-based subsidiary â€” through a Dutch company that has no employees (the â€œDutch Sandwichâ€) â€” to a Bermuda mailbox owned by a different, but affiliated company also registered in Ireland.
The purpose of these loopholes is to move overseas profits away from countries with higher taxes. Itâ€™s been criticized for resulting in an effective single-digit tax rate on foreign profits while allowing corporations to delay paying US taxes.
For 2017, Google shifted $22.7 billion to Bermuda compared to $19.2 billion in 2016. This tax loophole is a legal practice that complies with local laws, while Google says it has an effective 23% global tax rate over the past decade.
The company confirmed how itâ€™s ending the practice in a statement to Reuters today by â€œsimplifying our corporate structure and will license our IP (intellectual property) from the US, not Bermuda.â€
According to Reuters, this follows changes to US tax law, while Ireland announced in 2015 that the â€œDouble Irishâ€ would end in 2020:
The Trump administrationâ€™s Tax Cuts and Jobs Act, which came into effect in January 2018, ended the reason for U.S. companies to hoard foreign profits offshore. Now profits that have been made and taxed abroad are not subject to taxation when returned to the U.S.
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