SAN FRANCISCO – Alphabet, the parent company for Google, will abandon its longstanding intellectual property licensing strategy that allowed it to delay paying US taxes, media outlets reported on Thursday.
The parent firm for the world’s most-used online search engine has made a commitment to tax authorities in Ireland and The Netherlands to stop using the so-called “Double Irish, Dutch sandwich” strategy that many companies use to postpone paying US taxes on international profits, instead paying them in other countries where tax rates are much lower.
The legal mechanism consists of transferring funds earned from international business activities – that is, profits made outside the US – from Alphabet’s subsidiary in Ireland to a postal address in Bermuda, a tax paradise that does not levy income taxes on corporations.
The Bermuda address is owned by Google Ireland Holdings, another affiliated firm that does not belong to Alphabet but which is based in Ireland, and the funds are sent via a Dutch subsidiary.
In this way, Alphabet and other multinational companies who take advantage of this completely legal strategy for years have paid taxes that, in some cases, may be as low as one-quarter what they would have been in the US on the same earnings.
According to figures turned over by Alphabet to Irish and Dutch regulators, the firm transferred $22.7 billion to Bermuda in 2017 and $19.2 billion in 2016, thus avoiding paying the 35 percent US tax on business profits, which were lowered by the Donald Trump administration to 21 percent in 2018.
“We’re now simplifying our corporate structure and will license our IP (intellectual property) from the US, not Bermuda,” Alphabet said in a statement. “Including all annual and one-time income taxes over the past 10 years, our global effective tax rate has been over 23 percent, with more than 80 percent of that tax due in the US.”
Two factors reportedly contributed to Alphabet’s decision: Ireland’s decision, under pressure from the European Union and the US, to modify its legal provisions allowing this strategy and the new tax situation in the US, which is more favorable to big corporations after Trump’s tax reform.