Google is poised to confirm next week that controversial tax structures in Ireland, the Netherlands and Bermuda have boosted its offshore cash mountain to more than $43bn (£30bn), figures from financial analysts suggest.
Despite governments around the world promising to crack down on the tech company’s tax avoidance arrangements, Wall Street analysts are confident Google will continue to salt away profits in Bermuda for years to come.
Offshore reserves of $43bn, held largely through Bermuda, represent profits from markets outside the US. Of these markets, the UK is the largest, accounting for 17% of non-US sales. But latest published accounts show Google’s UK subsidiary paid just £21m in tax for 2013.
Google’s tax structure means income from many major overseas markets – including £4.56bn from the UK – is booked through Ireland. Much of it is then bounced through the Netherlands and back to Ireland and Bermuda. These strategies are known in tax jargon as the “Double Irish” and the “Dutch Sandwich”.
Two years ago, George Osborne promised to bring an end the “extraordinary lengths … some technology companies go to to pay little or no tax [in Britain]”, introducing a tax on diverted profits last year.
Last week, however, Google reached a long-awaited settlement with HRMC – in which it agreed to pay £130m in back taxes and bear a greater tax burden in future – that effectively sanctioned its continued use of Irish companies to book UK sales. Only a small increase in UK tax must now be paid by Google’s British arm.
The government was accused of allowing Google to pay too little, and it has been reported that the internet giant is facing a tax bill three times that size in France.
Tax reforms announced last year by Irish government and the G20 have also promised to curb Google’s aggressive tax structuring, but have yet to take effect. In the meantime, Wall Street analysts are not predicting any rise in the effective tax rate the company will be required to pay in future years.
Meanwhile, Google bosses have been struggling to find a use for ballooning sums in their corporate coffers, which reached $73bn at the end of September. The following month, the group announced that $5bn would be returned to shareholders through a share buyback. The buyback is not expected to include cash controversially held through tax structures offshore because that would trigger a large US tax bill.
According to Mark Mahaney, an analyst at RBC Capital Markets, Google is expected to once again spend less money than it earns this year, boosting the group’s total cash reserves to $90bn by the end of December. Analysts at Credit Suisse said it could end the year closer to $92bn, while analysts Morningstar said the cash figure could grow to $112bn by the end of 2018.
Google declined to comment.
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