As Brussels Moved A Million Migrants Into The EU,Google Europe Moved $23 Billion To Tax Haven In 2017
While the virtue — signallers and right — on millennials are creaming themselves over the United Nations Pact On Migration, which they see as a big step towards a borderless world; while they chirrup in unison as usual missing the point of what a borderless world would mean. “Oh those lovely dark skinned people will come by the million to live among us and enrich our culture with their enlightened ways and cultural traditions,” they forget that those enlightened ways and traditions include throwing homosexuals off high buildings, stoning women and publicly beheading adulterers.
Whether they think that is a good or bad thing is a matter of opinion. However other implications of a borderless world are not, and our virtue — signalling compatriots might be horrified to learn what other freedoms of movement a borderless world might facilitate alongside unrestricted movement of people. News of Google’s latest and perfectly legal, (thanks to progress in globalisation,) move to protect its obscene levels of profit from taxation in the European Union involve a financial device known as the Double Irish Dutch Sandwich (DDIS). Be careful not to confuse this with A Dutch Reverse Steamboat, which falls into a very different category of activities.
The DIDS accounting strategy involves using a Netherlands-based subsidiary to shift royalties paid in Europe — Google EU is headquartered in Dublin — to Google Ireland Holdings, the company’s Bermuda-based affiliate. According to a Google filing with the Dutch Chamber of Commerce, the search giant channelled 19.9 billion euros ($22.7 billion) through such a structure to its company in the Bermuda tax haven in 2017, around 4 billion euros ($4.5 billion) more than 2016, Reuters reported.
The arrangement, a variation on the dear old ‘Luxembourg Structure’ allowed Google to reduce its tax bill for operations within the EU to single-digit levels, roughly one-quarter of the official rate for those tax jurisdictions.
But little can be done about it because, as Google likes to remind us, it is perfectly legal.
“We pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” Google said in a statement.
“Google, like other multinational companies, pays the vast majority of its corporate income tax in its home country, and we have paid a global effective tax rate of 26% over the last 10 years.”’
The DIDS strategy, which involves an employee of a Netherlands company who works in Dublin, sending invoices for e.g. ‘management services relating to royalties on patents,’ to an employee of each national operation in the EU (these employees also work in Dublin.) The national offices (which are pigeon holes in mail drop addresses, the accounts people who deal with the invoices actually work in — you guessed it, Dublin,) by paying the invoices move profits to the place with the lowest corporate tax rate in Europe. Then the accounts department of a Bermuda company — Google Atlantic (Holdings) Ltd., the staff of which all work in Dublin, send an invoice for something vague like ‘financial consultancy relating to royalties on patents’ to European headquarters (in Dublin you may remember,) where it is dealt with by someone who may have handled all the transactions in the chain without ever leaving Dublin. This allows Google to avoid US income taxes and European withholding taxes. However, thanks to recent changes in Irish law (which followed pressure from the EU), the favorable treatment of ‘non resident’ companies is due to end in 2020. That will be a bit of a bugger because they’ll have to move back to Luxembourg. Or maybe not.
The goal of a budgetary proposal in Ireland’s 2015 budget was to shut down the use of so-called “Double Irish” and “Double Irish Dutch Sandwich” structures commonly used by U.S. multinationals, such as Google, Microsoft, and Facebook, among others, to significantly reduce their worldwide effective tax rate on royalties derived from the exploitation of intellectual property .
Because the Irish proposal only addresses revenue from royalties on patents, does it really put an end to the Double Irish structures (with or without the Dutch sandwich) or US corporations exploiting the favourable treatment Ireland offers to hide profits offshore? In a word, No. At least not if your accountants have more brain cells than tits or testicles as the case may be. The same benefits can be achieved by only slightly modifying the existing structures to avoid triggering the new proposed rules, For example by moving Google Europe Holdings (Ireland) Ltd. from Dublin to Google Europe Holdings (Malta) Ltd. whose offices are in …………… Dublin.
The Double Dutch structures are useful for a few reasons. Primarily, Ireland has a 12.5 percent corporate income tax rate for active “trading” income, is English speaking, and is highly educated. Also Ireland uses a management and control standard for determining residency, thus it is possible to protect income earned by the top-tier subsidiary from Irish taxation by placing management in another country (an Irish Non Resident company.)
Thanks to the box checking culture of the US public sector, profits can be entirely avoided by ensuring lower-tier subsidiaries to be disregarded for U.S. tax purposes, because all of the non-U.S. activities are considered to be conducted by a single entity. The only factor that has been altered by the Irish proposals is the residency clause. Under the proposals, moving management and control of an Irish company to a Caribbean nation with which Ireland does not have a tax harmonisation treaty covering corporate residency will no longer achieve the desired objective. Under the treaty with Malta however, it is possible to form an INR, as under existing structures, with its management and control in Malta. Pursuant to the treaty between Malta and Ireland (which will not be overridden by the new proposal), the INR, though trading solely in Ireland, should be treated as a resident of Malta, and not Ireland (See Article 4(3) of the treaty). Malta does not impose any tax on royalties derived from patents or other intellectual properties.
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