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"Dutch Sandwich" helps Google to reduce effective overseas tax

2013-11-12

The U.S.-based internet giant funnelled a total of €8.8 billion in royalties through a Dutch subsidiary in 2012, according to financial reports. The news marks Google’s increase in global revenues, and the growing use of the “Dutch sandwich” tax structure by multinational companies to lessen overseas tax rates.

The “Dutch Sandwich” refers to routing profits through a Dutch holding company to a low-tax jurisdiction, such as Bermuda. The Netherlands does not levy withholding taxes on dividends and royalties. Bermuda does not have corporate income tax.

Google Netherlands Holdings B.V., is the Dutch Sandwich part of Google’s corporate tax structure. The Amsterdam-based subsidiary receives royalties from Google’s global operations, and has no employees.

Profits are funnelled through the Netherlands to Google Ireland Holdings, a subsidiary that has dual residencies in Ireland and Bermuda. Under Irish law, multinational companies can incorporate a company in Ireland but establish its tax residency in a different low-tax jurisdiction where it is controlled or managed.

Google Ireland Holdings is owned by another Bermuda-based subsidiary, Google Bermuda Unlimited. It consists of a mailbox held by the company, Conyers, Dill and Pearman. Google Bermuda’s unlimited status means that it is not required to disclose its financial statements. 

Google’s non-US intellectual property is held in Bermuda, by Google Ireland Holdings, which licenses out the use of intellectual property to Google Ireland Limited, the heart of Google’s global operations. The Dublin-based company recorded 2,199 employees in 2012.  

“Substantially all” of the company’s foreign (non-U.S.) profits are booked by Google Ireland Limited. It sends overseas profits in the form of royalty payments through Google Netherlands Holdings, which sends 99.8% of what it collects to Bermuda free of withholding taxes. 

In 2012, Google Netherlands Holdings received a total of €8.8 billion in royalties from Google Ireland Limited (€8.6 billion) and Google’s Singapore operations (€232.8 million). Google Netherlands Holdings paid all but €10.4 million to Bermuda-based Google Ireland Holdings.

Google’s effective overseas tax rate was reduced to around 5%, which is less than half of Ireland’s 12.5% corporate income tax rate, by utilizing the Dutch Sandwich. Google will avoid U.S. taxes on its global profits by permanently reinvesting them into its global operations.  

Click here to view the detailed diagram of "Dutch sandwich" in Google's corporate tax structure model.

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