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Google's 'Double Irish' tax scheme saved it $3.1B

Ireland's tax laws have allowed Google--and lots of other companies--to reduce their effective tax rates by moving foreign profits in and out of subsidiaries.

Usually when you order a Double Irish you wind up with a healthy slug of Jameson, not a complicated tax-reduction scheme on the Emerald Isle.

But turns out Google and many other companies are taking advantage of legal tax maneuvers to dramatically reduce the amount of taxes they have to pay on money earned outside the U.S., according to a report today from Bloomberg Businessweek. The report said Google has employed the "Double Irish" technique with such aplomb as to lower the tax rate it pays on income generated outside the U.S. to 2.4 percent, lower than any of its rich technology industry peers.

When a big U.S. company expands overseas, it tends to license its intellectual property to foreign subsidiaries in order to have income generated in those countries taxed at rates that in most cases is lower than the 35 percent corporate tax rate in the U.S. According to Bloomberg Businessweek, which published an article on the Double Irish technique earlier this year, Ireland's tax laws allow a foreign company to set up two subsidiaries: one based entirely in Ireland that pays the royalties for that intellectual property to the second company, also based in Ireland but set up with management offices in tax-friendly locations like Bermuda.

In short: Google licenses its intellectual property to Google Ireland Holdings. Google Ireland Holdings owns a separate company called Google Ireland Limited. Google Ireland Limited sells advertising in Europe, the Middle East, and Africa, and pays Google Ireland Holdings royalties for the right to sell such advertising. Google Ireland Holdings is set up with something called an "effective center of management" in Bermuda, and collects royalty payments from Google Ireland Limited after they are detoured through the Netherlands (amusingly known as the "Dutch Sandwich") to satisfy Irish tax laws.

The end result is that Google saved $3.1 billion in taxes over the last three years, according to the report. The method is popular both inside and outside the tech industry, as well: experts quoted by Bloomberg Businessweek estimate that the U.S. government loses $60 billion a year in taxes from companies that use this technique.

Again, this is all completely legal. The report loses a little steam when it quotes an expert playing the "evil" card against Google's use of the practice, which is getting a bit silly: maximizing profits while following laws is not inherently evil.

But it is yet another sign that Google is just another big multinational corporation. Perhaps one with a loftier motto than most, but one just the same.