Google, one of the world’s most profitable tech companies, has faced significant criticism for its use of complex tax avoidance strategies to minimize its tax liabilities in various countries. Among the most notorious schemes employed by Google are the “Double Irish” and “Dutch Sandwich,” which allowed the company to shift billions of dollars in profits to low-tax jurisdictions. These practices have sparked outrage among governments, activists, and the public, who argue that such tactics deprive countries of much-needed tax revenue and undermine the fairness of the global tax system.
What Are the “Double Irish” and “Dutch Sandwich”?
The “Double Irish” and “Dutch Sandwich” are tax avoidance strategies that involve routing profits through multiple subsidiaries in different countries to take advantage of loopholes in tax laws. Here’s how they work:
- Double Irish: This scheme involves setting up two Irish subsidiaries. One subsidiary is tax-resident in Ireland, while the other is tax-resident in a tax haven, such as Bermuda. Profits are funneled through the Irish subsidiaries, where they are subject to Ireland’s low corporate tax rate (12.5%) or exempt from taxation altogether.
- Dutch Sandwich: This strategy adds an extra layer by routing profits through a Dutch subsidiary. The profits are transferred from one Irish subsidiary to a Dutch subsidiary and then to the second Irish subsidiary in the tax haven. The Netherlands is used because of its favorable tax treaties, which allow profits to be moved with little or no tax.
By using these schemes, Google was able to significantly reduce its effective tax rate. For example, in 2017, it was reported that Google shifted €19.9 billion ($22.7 billion) through a Dutch shell company to Bermuda, where it paid no taxes.
Global Criticism and Backlash
Google’s tax practices have drawn widespread criticism from governments, advocacy groups, and the public. Critics argue that the company’s aggressive tax avoidance deprives countries of revenue that could be used to fund public services such as healthcare, education, and infrastructure.
In the European Union, Google has been a frequent target of tax investigations. In 2016, the European Commission ordered Ireland to recover €13 billion ($14.5 billion) in unpaid taxes from Apple, another tech giant that used similar tax strategies. While Google has not faced a penalty of that magnitude, the case highlighted the broader issue of multinational corporations exploiting tax loopholes.
In the United States, Google has also faced scrutiny. A 2019 report by the Institute on Taxation and Economic Policy (ITEP) found that Google was among the top U.S. corporations that paid little to no federal income tax despite earning billions in profits. The report revealed that Google’s effective federal tax rate between 2008 and 2015 was just 15.8%, far below the statutory rate of 35%.
Google’s Defense
Google has defended its tax practices, arguing that it complies with all applicable tax laws and pays taxes in the countries where it operates. The company has stated that its tax strategies are legal and common among multinational corporations. In a 2019 blog post, Google’s Senior Vice President of Global Affairs, Kent Walker, wrote:
“We pay the vast majority of our corporate income tax in the U.S. because that’s where most of our products and services are developed. We also pay taxes in all the countries where we operate, in full compliance with local laws.”
However, critics argue that while these practices may be legal, they are ethically questionable and contribute to growing inequality by shifting the tax burden onto smaller businesses and individual taxpayers.
Reforms and Changes
In response to mounting pressure, several countries and international organizations have taken steps to close tax loopholes and crack down on corporate tax avoidance. For example:
- Ireland phased out the “Double Irish” scheme in 2015, although companies already using the strategy were allowed to continue until 2020.
- The Organisation for Economic Co-operation and Development (OECD) has been working on a global tax reform plan to ensure that multinational corporations pay a minimum level of tax, regardless of where they operate.
Google has also made some changes to its tax structure. In 2019, the company announced that it would no longer use the “Double Irish” and “Dutch Sandwich” schemes and would instead route its non-U.S. profits through a single entity in Ireland.
Conclusion
Google’s use of the “Double Irish” and “Dutch Sandwich” tax avoidance schemes has sparked a global debate about corporate responsibility and the fairness of the international tax system. While the company has taken steps to address criticism and adapt to changing regulations, the controversy underscores the need for comprehensive tax reforms to ensure that multinational corporations pay their fair share. As governments and organizations continue to tackle these issues, the case of Google serves as a reminder of the challenges and complexities of regulating corporate tax practices in a globalized economy.
References:
- The Guardian. (2017). “Google shifted €19.9bn to Bermuda in 2016, avoiding billions in tax.” Link
- BBC News. (2019). “Google to end ‘Double Irish, Dutch Sandwich’ tax scheme.” Link
- Institute on Taxation and Economic Policy (ITEP). (2019). “Corporate Tax Avoidance in the First Year of the Trump Tax Law.” Link
- The New York Times. (2016). “Apple vs. the E.U. Is the Biggest Tax Battle in History.” Link
- Google Blog. (2019). “Our approach to tax.” by Kent Walker. Link
