In this blog post, Sucharita Ghosh, a student of Surendranath Law College, University of Calcutta, Kolkata, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata deliberates on a very interesting question, which is ‘why is Google headquartered in Ireland?’
The term “to Google” is so popular these days that the company is actually worried about losing its trademark rights if the term becomes so generic like ‘Escalator’ and ‘zipper’ which were once trademarked.
Now -a-days, Google is almost synonymous with internet. We can’t even imagine our life without it. Everyone from 8 to 80 use the services provided by Google such as Google search, Google Chrome, YouTube, Hangout, Gmail, Google +, Google Docs, Android OS and many more. Years after years Google has developed enough online applications for its users to enable them to do anything they need only using Google. It has become our collective mental crutch. Google has allowed us to travel the globe within seconds and access a plethora of information from our desk. Presently, Google is undoubtedly the most popular and exciting company in the world today.
The company Google.Inc is an American multinational technology company specializing in Internet-related services and products. These include online advertising technologies, search, cloud computing, software, email services, social networking services, photo editing applications, instant messaging, video chat etc. The company Google.Inc began in 1996 as the brainchild of Sergey Brin and Larry Page, two Ph.D. students of Stanford University with the aim to organize the world’s information. They incorporated Google as a private company on September 4, 1998. The Initial public offerings followed on August 19, 2004. Its outset was “to organize world’s information and make it universally accessible and useful” and its unofficial slogan was “don’t be the evil”
This company established their main headquarter in Mountain View, California, nicknamed the Googleplex. Around the world, Google has many offices in many countries. It operates from 70 offices in more than 40 countries. Google’s European headquarter is in Ireland. It established their head-office at Dublin.
Ireland is the most attractive European business hub. Not only Google but many large companies like Apple, Facebook, Twitter, LinkedIn, Microsoft, Yahoo etc. have established their head-office there. Statistics shows that
- 9 out of 10 world-leading technology and internet companies,
- 8 out of 10 leading online game companies and platforms,
- 8 out of 10 world-leading Pharmaceutical companies,
- 15 of the top 20 world-leading Life Science companies,
- Over 50% of the world’s leading Financial Services firms have established their head office there.
Google has several reasons to choose Ireland for setting up headquarters there. This company is not only famous for finding information, but also for its brilliant business strategies. The main reason behind choosing Ireland as headquarter is the low tax rate.
Lowest tax rate
The company Google is exceptionally efficient in their tax management system. The company is earning billions of profit by using tax avoidance strategies.The corporate tax in Ireland is only 12.5%, which is less than half of the current UK level of 28% and US 35%, which help them to earn more profits by paying small income tax.
They have adopted various strategies to reduce tax. Google is using strategies known as “Double Irish Arrangement” And “Double Irish with Dutch Sandwich”.
Double Irish Arrangement
The double Irish arrangement is a tax strategy that some multinational corporations used to lower their corporate tax liabilities. This strategy used payments between two related entities in a corporate structure to move income from a higher-tax country to a lower tax jurisdiction. It relies on the fact that Irish tax law does not include transfer pricing rule as does the United States and those of many other jurisdictions. Specifically, Ireland has territorial taxation, and does not levy taxes on income booked in subsidiaries of Irish companies that are outside the state. But now, the Irish government has shutdown the shelter for the new companies in 2015, though those already engaging in the arrangement have until 2020 to find another arrangement.
Double Irish with Dutch Sandwich
Google is adding another technique to further reduce their tax burden, which is known as ‘Dutch sandwich’ to the tax lawyers.
This ‘double Irish with Dutch Sandwich’ is a tax avoidance technique involving the use of a combination of Irish and Dutch subsidiary companies to shift their profits to low or no tax jurisdiction. It involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in ‘Tax Heaven’.
So, now let’s see what is Tax Heaven?
A tax heaven is a jurisdiction where particular taxes, such as an inherence or income tax are levied at a low rate or not at all. If the taxes are paid in the tax heaven jurisdiction, companies can avoid taxes in their home jurisdiction because the tax has already been paid in the lower tax rate jurisdiction. Tax heaven maintain secrecy by avoiding public disclosure of financial statement to foreign tax authorities.
How Google is avoiding billions of taxes?
With the help of above discussed techniques, Google is escaping from paying lump sum amount of taxes, which are helping them to reduce tax up to 90%.
Let’s discuss how it works.
Google opened a large office in Ireland called Google Ireland Ltd. It is not a pure empty shell company. Near about 2000 people work on that company. Google has another subsidiary called Google Ireland Holding. It has no physical office. The company is fully managed from Bermuda, a well-known tax heaven, where tax rate is 1%. Google licenses intellectual property such as internal property, brands, names, technology and patent rights etc. to this Irish company for a small fee. Google’s another subsidiary company, Google Ireland Ltd. is created with 88% of Google’s overseas revenue, yet this company pays taxes of less than 1% because it pays several billion dollars annually back to Google Ireland Holding in royalty payments. It may seem like Google is illegally avoiding Irish tax. That would be true if the payments remained within the boundaries of Ireland. But they don’t. Google Ireland Ltd. doesn’t pay Google Ireland Holding directly; rather it sends payment to another subsidiary Google Netherland Holdings BV, a company with no employees, and which exists only to accept these payments. Now, if the money stays in Netherlands, it would be taxed under Dutch rules. But, the brilliant tax management system of Google sends almost all its money from Google Netherlands holdings to Google Ireland holdings.
For example, a customer buys advertisement from Google USA. Then Google USA will pay to Google Ireland Holding for managing its intellectual property rights. Google Ireland holding then will send it to Google Ireland Ltd. This company will shift it to Google Netherlands BV and according to Dutch laws, its money holding will be paid back again to Google Ireland holding, which is totally managed from Bermuda, which located in the tax heaven.
In this way they are saving billions of taxes…
Not only tax reasons, there are many other reasons which led Google to select Ireland for establishing it’s headquarter. These are:
Though the low tax rate is the main reason, but the Irish weather is one of the key reasons for Google to choose Dublin as headquarter. Ireland’s wet damp climate plays a significant role in helping keep energy cost for the company down. Google has managed to reduce the amount of the energy it uses worldwide to cool down its data system to just 12% of its energy bills. The chilly climate of Ireland makes the data processing center more energy efficient and hence greener to cool down its server.
Location is another important reason why Google set up its headquarter outside US. Ireland is one of the most open and globally connected countries in the world. Dublin is considered to be an attractive location for multinational workforce as it is the key gateway to Europe, Middle East and the USA. This country is the closest EU country to USA. And it is very well connected to the US on a personal, business and political level.
Another advantage of the country, Ireland is it is a member of EU. It falls under the Euro zone, which is the most stable currency in the world.
Young, talented multilingual workforce
One of the many reasons companies choose to locate in Ireland is the availability of a well-educated, young, English-speaking workforce who have a positive can-do attitude and a strong commitment towards excellence and teamwork. Ireland has the youngest workforce in Europe, with 35% under 25 years of age. Combined with the indigenous workforce these ‘new Irish’ ensure a plentiful supply of highly qualified workers with excellent technical, flexible and customer service capabilities. This country stood well in terms of availability of skilled labour and openness to new ideas.
Not only that, Dublin has hospitality in its DNA. The city has a reputation for being one of the most hospitable and friendliest places in the world. This city offers a great quality of life too. It has very supportive regulatory environment. Research & Development support, weak IP and Tax Laws, availability of government subsidies, all attributes has made Google choose this city.
In conclusion, it will not be unjust to say that, not just one, but there are several reasons for big companies like Google to choose Ireland for setting up their head office outside US. From this above discussion we can find the key reasons behind shifting Google’s headquarter in Ireland.