Mini-Case - Google, Taxes, and “Do No Evil” Google\'s offshore tax strategy is t
ID: 2754716 • Letter: M
Question
Mini-Case - Google, Taxes, and “Do No Evil”
Google's offshore tax strategy is the Double-Irish-Dutch Sandwich, which is based on the repositioning of ownership of many of its patents, copyrights, and other intellectual property to a subsidiary in a low-tax environment like Ireland.
The Inland Revenue Service in the UK has been frustrated by the magnitude of sales generated by Google resulting in such a low tax liability. Google is also set up as a Permanent Establishment (PE), whose rules allow firms such as Google to fix a tax base in a low-tax country like Ireland, while generating lots of business in a country where the tax rates are higher, like France.
Companies in principle are taxed not on where they do business but on where they finalize their business deals with customers - the country or jurisdiction where the final contract is signed. In the case of Google, that means most sales throughout the EU are finalized in Ireland.
My question:
What are some possible changes to the tax code that would bring the tax liabilities payable by Google to onshore U.K.?
Explanation / Answer
Corporation tax is a corporate tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the European Union.
There is a risk of double taxation whenever a company receives income that has already been taxed. This could be dividend income, which will have been paid out of the post-taxprofits of another company and which may have suffered withholding tax. Or it could be because the company itself has suffered foreign tax, perhaps because it conducts part of its trade through an overseas permanent establishment, or because it receives other types of foreign income.
Double taxation is avoided for UK dividends by exempting them from tax for most companies: only dealers in shares suffer tax on them. Where double taxation arises because of overseas tax suffered, relief is available either in the form of expense or credit relief. Expense relief allows the overseas tax to be treated as a deductible expense in the tax computation. Credit relief is given as a deduction from the UK tax liability, but is restricted to the amount of UK tax suffered on the foreign income. There is a system of onshore pooling, so that overseas tax suffered in high tax territories may be set off against taxable income arising from low tax territories. From 1 July 2009, new rules were introduced to exempt most non-UK dividends from corporation tax so these double taxation rules in respect of non-UK dividends will be of less common application in practice after that date