Ah, good ol’ Ireland, the land of green grass, Guinness.. and a tasty 12.5 percent corporation tax rate. Actually, make mine a double.
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Attractive by any standards, especially when compared to a 30 per cent corporation tax regime here, and for search giant Google it is too much to resist, channeling its Australian search ad revenue through its Irish operation.
According to the SMH, Google’s local operation here claimed a $3 million loss at year ending December 31 last, despite pulling in revenues of approximately $741m (as estimated by analysts Frost & Sullivan) in its search ad business.
So, something doesn’t add up. Its Australian business also paid just $1m in tax and claimed earnings revenues of just $151 million. And where is the mystery $600m- odd sum going if analyst estimations are correct?
It’s all in the accounting methods and the way it classifies its business here, as a ‘services’ company, rather than a commercial entity in its own right, meaning the monies paid by businesses to advertise with Google Australia is being counted as revenue and taxed at its Irish operation.
These practices known as the “Double Irish” and the “Dutch Sandwich” (referring to Holland) has in the past helped reduce its overseas tax rate (outside the US) to just 2.4 percent – the lowest of the top five US technology companies.
This practice is common for multi nationals, particularly for large corporations which choose a tax havens like Ireland and Bermuda to channel revenues through.
Google Ireland is the European base for its global operations although the nation makes up just a tiny proportion of its earnings and earlier this year announced 100 new jobs for the recession torn island adding to its current workforce of around 2,000.
And with friends like Google as well as other tech giants like HP and Intel the country is reluctant to forgo its low tax rate, which European counterparts Nicolas Sarkozy and Angela Merkel have been furiously pressuring its PM, Enda Kenny, to reform for some time.
However, the search giant denies any wrong doing, insisting it contributes “to all relevant local and national taxation schemes.”
”Google complies fully with all relevant tax legislation in all the countries in which it operates, including in Australia.”
It also didn’t hasten to remind the journalist of its “providing employment for over 400 employees” here and gave exactly the same blanket response when quizzed by US media last year.
And it seems the search powerhouse continues to keep a tight hold of the web search ad spend in Oz, accounting for 90 per cent of the total of $831 million, with the remainder held by Yahoo!7 and Ninemsn.