Alphabet Inc Google Avoided Paying $2.4 Billion in Taxes by Using European Subsidiaries

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Tax filings have shown that Alphabet Inc (NASDAQ:GOOG)’s Google has saved $2.4 billion in taxes in 2014 by moving €10.7 billion of its international revenues to a Bermuda shell company, Alphabet Inc.

Tax filings submitted to the Dutch Chamber of Commerce on Feb 4 have shown that Google transferred the bulk of its overseas profits to Bermuda through its Dutch subsidiary, Google Netherlands Holdings. Google used tax structures known as “Double Irish” and “Dutch Sandwich” to get around paying tax on their international profits.

These tax structures involve moving money from the Irish Google subsidiary to the Dutch subsidiary and then moving it to a different Irish subsidiary located in Bermuda, where corporations do not have to pay corporate income tax. Shift money around like this meant that Alphabet (Google’s parent company) paid, on average, only 6.3% tax on their income from foreign operations.

News of the company’s tax avoidance sparked outrage in European countries, especially given that the company has lately been in the public eye over tax avoidance controversies. Last month Google reached a controversial settlement with the UK government according to which the company would only pay back £130 million of income tax after evading paying tax in the UK for over a decade by transferring all its profits to an Irish subsidiary.

The settlement was so controversial it led to parliamentary hearings, a government audit as well as criticism from the European Union. France and Italy are also rumored to be negotiating similar settlements with Google. Last year the Irish government decided to close the loophole which allowed companies like Google to transfer money through Irish subsidiaries without paying tax but the decision will only come into effect in 2024.

Tom Hutchinson, Google’s vice president for finance defended the company’s tax settlement with the UK during hearings before a UK parliamentary committing. He claimed that Google now pays “a fair amount” of tax worldwide. He also argued that the complicated tax structure which involved shifting profits around different international subsidiaries “made sense” because the US government taxes companies on foreign income if they bring it back into the US.

As long as the US government taxes foreign income in this way, companies will have an incentive to keep their foreign income overseas in countries with little or no corporation tax. According to the company’s US Securities and Exchange Commission filings, Google hold over $43 billion in foreign subsidiaries, cash which cannot be taxed by the US.