2 Nov 2010

How multinationals avoid paying tax

Following up from my paper on Flat Rate Transaction Taxes, here's a beautiful demonstration of the sort of problem that we are faced with (scanned from last weeks "Canard Enchainé" – a satirical newspaper that comes out every Wednesday in France – compulsory reading for me).

For those who can't read the French, here's the gist.

Google only pays 2.4% tax on the profits that it makes in Europe (normally, companies in France would pay 34.4%). How do they manage it? By using what is known as "fiscal optimization". Google's operations in Europe, the Middle East and Africa are handled by Google Ireland Holdings, based in Bermuda. The profits get there via Ireland and Holland, two countries whose very liberal taxation rules means that they don't seem to object.

The article goes on to say that Google could bring the money into the US, but would have to pay 35% tax. So, to avoid this, they just leave the money in Bermuda. And apparently, this sort of practice is widespread – Bloomberg Finance estimates that US companies have $2 trillion hidden in tax havens.

I call that ridiculous. $2 trillion that should be in the economy. If Google were to transfer 1% of all its financial transactions to the governments in the countries in which it is operating, those countries would be in a lot less trouble than they are currently.

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