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Google, Yahoo, Cisco under scrutiny after Apple tax avoidance hearing

updated 11:31 am EDT, Wed May 22, 2013

Large tech companies hide funds in Cayman Islands, Switzerland

Large tech firms are coming under scrutiny over their tax avoidance measures, following the testimony of Apple executives to a US Senate Permanent Subcommittee. Google, Yahoo, Cisco, and other multinational corporations have been found to be using an assortment of tax loopholes and off-shoring in order to avoid paying governments in the US and Europe at least $100 billion.

Retired international tax attorney Michael Durst suggested to Bloomberg that the various world governments allowed multinationals to perform these tax maneuvers by funneling cash through other countries, with the result being "eroding public confidence in the fairness of tax systems in the United States and around the world."

Google uses the tax laws in Ireland and the Netherlands, termed a "Double Irish" and "Dutch Sandwich" by tax attorneys, to push cash into accounts located in Bermuda, a country without corporate income tax, in order to avoid around $2 billion in income tax each year. Yahoo uses a Netherlands-based accountant and stores funds in Mauritius and Switzerland, as well as operating an Irish subsidiary that is claimed to be a tax resident of the Cayman Islands. Cisco is alleged to have shifted half of its global profits to a unit in Switzerland, also avoiding billions in taxes.

In order to combat the "stateless income" that large companies have used to avoid taxes, a number of organizations are stepping in to work on the problem. Organization for Economic Cooperation and Development, at the request of a number of countries, is working on an "action plan" to prevent the loss of tax revenues via profit shifting, with a view to publishing it in July. The US Treasury Department listed a number of global tax loopholes that need to be closed, some of which have failed to close despite legal efforts.

The European Commission is also looking at the tax issue, and the British parliament has already questioned Amazon, Google, and Apple over tax dodging. France is also considering levying a new tax on technology products, partly to cover missing taxes, and to help fund cultural projects.

One possible solution is hinted at by former corporate tax attorney and professor of the University of Southern California Law School Edward Kleinbard. He feels that the subsidiaries external to the United States typically perform little in the way of tasks for the company, except passing money from one place to another -- with decisions for their operation typically made by the corporate office back in the US. "If they are not really competent to make independent decisions to take risks and make contracts on their own behalf, then the structure collapses of its own weight, and the income properly should be taxed to the United States," according to Kleinbard.



By Electronista Staff
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Comments

  1. cashxx

    Fresh-Faced Recruit

    Joined: 04-13-09

    Its not their fault they are just limiting the taxes they pay. Yea its shady, but legal! Congress is the one who made the laws, its their fault! McCain and Levin are probably two who are career politicians who made the laws, blame them!! They need to fix the loop holes so companies and individuals can't use the loop holes.

  1. prl99

    Dedicated MacNNer

    Joined: 03-24-09

    Congress is making a lot of noise but won't close many of these loopholes because they are being paid (contributions ;-) ) by many companies (big oil for decades) to keep them open so they can make money for their investors. It all filters down to the corrupt stock market where companies have to show profits or their value falls dramatically. Tax loopholes need to be closed, just like all the other benefits companies have, but you can't forget about the stock market. Greed is what runs the grand old USA (and the world) and anything that upsets the greed cart is going to kill the middle class.

  1. Tralthamidor

    Fresh-Faced Recruit

    Joined: 06-11-07

    "to avoid paying governments in the US and Europe at least $100 billion" that's quite a lot of tax. Perhaps you meant 'paying taxes ON at least $100 billion'.

  1. Flying Meat

    Dedicated MacNNer

    Joined: 01-25-07

    "anything that upsets the greed cart is going to kill the middle class."
    That's the claim anyway, regardless of the historical facts to the contrary.

  1. pairof9s

    Mac Enthusiast

    Joined: 01-03-08

    Have to agree w/ most here...this is the pot calling the kettle black. Don't like the results then change the laws you created that produce these results.

  1. elroth

    Junior Member

    Joined: 07-05-06

    There appears to be a difference here - Apple does not shift its US profits out of the US (though they move their European profits to different countries), and they don't have shell companies in Bermuda and the Cayman Islands that they funnel their US profits to, so they end up paying their fair US taxes. It appears that Google and others do move their US profits to offshore shell companies, thus avoiding US taxes.

    People have been calling for Congress to close those loopholes for years, but they've never gotten enough votes, after heavy lobbying from corporations.

  1. chas_m

    MacNN Staff

    Joined: 08-04-01

    Tralthamidor: I checked on that for you, and indeed the story's quote is accurate. The total sum of taxes avoided by all corporations (not just tech ones) in the US and Europe is indeed about $100B.

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