With today’s news that Google is re-organizing under an umbrella corporation, the so-called Alphabet (see Google’s official blog here), to separate its businesses and to better position itself to innovate more quickly, it will be interesting to see what effect the umbrella company and the separation of the businesses will have on Google. Some writers are already declaring that the move makes sense (see Verge article here).
However, it also raises additional questions as to how this re-organization will affect Google’s/Alphabet’s tax strategies and its use of transfer pricing (see Tax Justice Network’s explanation of transfer pricing, in general, here) to lower its effective tax rates. In the past, Google has employed a “Dutch Sandwich” to minimize the tax paid to the United States and to other high tax jurisdictions (see Bloomberg article here).
This “Dutch Sandwich” strategy employed by Google routed revenue from its primary line of business, advertising income, to its Irish subsidiary. But instead of paying tax in Ireland, at the 12.5% rate, Google then re-routed the advertising income to the Netherlands using a shell corporation, and then re-routed the advertising income to Bermuda. All this movement allowed Google to lower its effective tax rate to between 4.5% and 25.8 percent, well below the U.S. Corporate tax rate of 35%.
This transfer pricing scheme lowers Google’s effective tax rate and also minimizes the amount of taxable income Google would have to pay to the IRS and the United States Government. The question going forward will be whether this reorganization was undertaken for investor/shareholder benefit or to further take advantage of transfer pricing tax benefits.
If you have specific and credible information about a company utilizing transfer pricing to minimize its US taxes, you may want to contact us about filing an IRS tax whistleblower claim, as the IRS has been systematically attacking various abusive transfer pricing applications by Multi-National Corporations. This could increase your chances of getting paid an award for altering the IRS to the so called “transfer pricing manipulation” or “transfer mispricing”.