Bloomberg took a close look at Google"s regulatory filings and found that over the last three years they have been able to cut $3.1 billion in taxes, thanks to loopholes in the system. They are using a technique that moves the money from Ireland and the Netherlands to the tropical island of Bermuda.
The income shifting strategy, known in the legal world as the Double Irish and the Dutch Sandwich, is a legal way to shift income overseas to avoid paying any taxes on it. Google was able to shift enough money around to lower its overseas income to just 2.4%. Martin A. Sullivan, a tax economist, said,
"It’s remarkable that Google’s effective rate is that low. We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent."
Using Bermuda as a tax shelter to avoid paying taxes on income is a technique that is beginning to pick up steam among tech companies. It is said that Facebook and Microsoft are beginning to take advantage of these tax loopholes.
The loophole itself takes advantage of an Irish law that allows companies to legally move money between subsidiaries, helping to escape Ireland"s 12.5% tax. So, these companies take income and move it to the islands where there is no corporate tax. This then lowers the amount of taxable income within countries like Ireland that allow money to be shifted tax free. Jane Penner, a Google spokesperson, defended the practice. "Google’s practices are very similar to those at countless other global companies operating across a wide range of industries.”