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Comment by Kristine1975 | Hacker News Reader

Kristine1975

If Google paid €8.8b in fees to avoid paying taxes, just how much taxes are we talking about?

Also seconding vmateixeira: Thanks for your research!

Well, they paid these fees to their own company so nothing was lost for them.

So basically Google inc (in a tax haven) makes Google Spain pay for the use of the Google brand 8 billions. Google Spain never makes a profit since it needs to pay a fee for using the brand, thus never have to pay taxes on their huge profit, that's how they get away with it. Apple does it too, with Apple Ireland in Europe.

Then Google US and Apple US just have to wait for a tax amnesty in the US in order to bring back oversea un-taxed profits.

>So basically Google inc (in a tax haven) makes Google Spain pay for the use of the Google brand 8 billions. Google Spain never makes a profit since it needs to pay a fee for using the brand, thus never have to pay taxes on their huge profit, that's how they get away with it.

I've seen you post this several times. Do you have a source that I could read up on this?

It's a bit more complicated than that, but yes, it seems that that's how it works: https://en.wikipedia.org/wiki/Double_Irish_arrangement

They most likely would be less taxed than un-taxed. My old boss used to say 'if you went looking and paid every tax you found that you might owe no one would be in business'. Of course there should be some middle ground.

Typically the firm creates a subsidiary that holds its intellectual property like patents, software and trademarks in a tax haven like Bermuda. Since there is no operations or R&D in those locations they may have little or no employees.

The subsidiaries in the high tax jurisdictions then license the IP from the Bermuda entity which siphons off profits.

Without the IP cross licensing deals the French subsidiary would have access to Google's IP at no cost which would inflate their profits enormously. To offset this Google would need to build R&D centers in each market.

While either scenario would likely benefit France it wouldn't likely be beneficial to Google.

But how does not licensing IP make sense? That creates a whole set of new problems, i.e. why should affiliated parties allow IP to be licensed for free, where the same expenses would be tax deductible for unaffiliated parties?

It makes sense to license the IP. Pushing the IP fees to the point that the subsidiary doesn't make money, not so much.

Likewise, it makes sense to loan money to your subsidiaries so they can grow. But making large, unnecessary loans of money from tax havens to sink your subsidiary's profitability doesn't sound honest.

You've actually hit on the basic 'integrity rule' for these kinds of arrangements (at least in Australia): foreign related entities must charge on-shore related entities using 'arms-length' pricing (the 'transfer pricing' rule). Same goes for the interest rates on loans made by foreign related entities, because the interest is deductible against gross profits (the 'thin capitalisation' rule). I've simplified somewhat, but this is the basic thrust of the law.

Companies will end up in court when their definition of an arms-length price/interest rate is significantly higher than what the national tax authority considers to be reasonable. However, having worked in the offshore tax-haven unit in the Australia Taxation Office (I even went on a tax raid once), and then subsequently worked in tax policy for a few years, I don't think things clear cut with google (and others). I'm not even sure that transfer pricing and thin cap are particularly relevant issues.

In general, I think this issue is much bigger than a simple case of companies crossing the line on transfer pricing and thin cap rules. 'Tech capital' is extremely mobile; it can literally be moved from one country to another in a matter of hours. This creates strong incentives for countries to undercut each others' corporate tax rates to attract that capital. Tax havens (and Ireland) are extreme examples of this. The only way to extract any meaningful amount of tax from tech multinationals is through some kind of international agreement on minimum corporate tax rates (one that is ratified by countries representing a large enough proportion of the world economy). You'd also have to apply trade sanctions to any country, signatory or not, that goes below this minimum threshold.

In short, it's unlikely google and others will have to pay their 'fair share' of tax any time soon. This might sound defeatist, but I think countries will need to shift their tax burden on to less mobile (and therefore, more economically efficient) bases, such as domestic consumption and land.

Please post some analysis on the main thread; there is a lot of confusion regarding IP licensing and tax avoidance. It would be good to have an expert opinion promoted to the top comment.

Even minimum corporate taxes wouldn't work, no? You'd also need to make sure there is no way to artificially extract these profits by imposing withholding taxes on most transactions inside a specific economic system (i.e. the EU). This seems almost impossible to do.

> Companies will end up in court when their definition of an arms-length price/interest rate is significantly higher than what the national tax authority considers to be reasonable.

A second issue I see is that smaller countries will often see certain transactions as "at arms length", whereas larger ones (with higher corporate tax rates) will not. But if a multinational can produce valid evidence from, let's say, 3 different jurisdictions that a transaction is at arms length, this will often be accepted by the court as being at arms length. In most countries, the burden is on the tax authority to prove something is not at arms length.

So yes, countries are often screwing each other over. Add to that that each country wants to stop avoidance (loss of tax revenue), and at the same time attract investment (by granting fiscal deduction for special interest groups) and you end up with a big mess.

This whole tax game is essentially basic arbitrage within a complex framework.

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