As gathered from a Google’s spokesperson yesterday, the company confirmed it’s going to stop its controversial double fund movement structure. Google said the decision is coming because the change is following the new U.S. tax law and the international rules on taxation.
In 2017, Google transferred about $19.9 billion to Bermuda from its Dutch holding company. However, in 2018 the fillings increased to $21.8 billion. All the funds were not taxable because of relaxed corporate tax law in Bermuda. Google has come out to say it’s going to stop the fund transfer practice this year as new taxation law takes effect from 2020.
In the past, Google takes advantage of some controversial loopholes in a bid to save millions in company tax. The company has reported that it will henceforth, cease to use the so-called “Dutch sandwich” and Double Irish” loopholes. Google and other international corporations were reportedly exploring the tax advantage of shifting their funds from Ireland to Bermuda and Netherlands. The loophole allowed thee multinationals to save millions of dollars in revenue tax.
International Regulations responsible for the change
The move is coming when regulations against the controversial tax loophole will take effect in both Ireland and the U.S. When the regulation begins, Google and other companies would no longer be able to take advantage of the loophole.
In the past, multinational organisations make use of a network of affiliates in Bermuda, the Netherlands, and Ireland to receive and hold their international funds. They do not pay much in terms of tax because of relaxed Irish tax laws. But it seems the new Irish regulations on company taxation would no longer allow the leniency.
How Google and other multinationals move their funds
The name “double fish” came about because of the nature and manner of the fund movement by the multinationals. The strategy involves moving funds from an Irish affiliated firm to another affiliated firm in the Netherlands. From there, the funds are again moved back to another Irish shell firm in Bermuda, which is licensed for Google’s intellectual property. The funds become a profitable final stop to prevent taxes because Bermuda has no law on corporate income tax.
The entire fund movement allows Google to evade paying any European withholding taxes or US income taxes on the funds. However, the Irish government still receives a little amount as tax.
Ireland closed the tax loopholes in 2014
After constant pressure from the US and European Union, Ireland patched up these tax loopholes in 2014. However, the new regulations gave companies until 2020 to rectify their end and start complying with the regulations. Following the regulation taking effect from this year, Google will now stop to use such fund transfer policies from this year.
Trump enticing companies to remit revenue tax
President Donald Trump has set up some policies to incentivize companies to remit their corporate tax. A company Act in 2018 made provisions that reduced the corporate tax from 35% to 21%. The Act allowed companies to remit their overseas income tax to the US without having any other US taxes. With this Act, Google would be lowering its overseas income tax when it stops using the “Dutch sandwich” and returns its tax to the United States. It would be a win-win situation for Google and the United States, according to some observers.