Internet giant Google funneled 128 billion euros through a Dutch subsidiary to Bermuda tax haven in eight years. This resulted in more than 25 million euros to the Dutch Tax Administration between 2012 and 2019. Google stopped construction last year, according to the last published annual report of the Dutch subsidiary.
Google says that the money has now been returned to the United States, where the tech giant‘s head office is located. That would have been taxed. How much is unknown.
The tax structure was about pumping royalties, fees for the use of Google’s intellectual property. Through a subsidiary from Ireland and one from Singapore, these fees ended up in the Netherlands with Google Netherlands Holdings B.V. The Dutch company then transferred the billions to a company in Bermuda.
Due to the flexible legislation and the extensive treaties network of the Netherlands, Google did not have to pay taxes on the royalties that entered and left the Netherlands. And once in Bermuda, the money was protected from tax authorities. The island state does not charge taxes.
Only if Google took the money from Bermuda to the United States would tax have to be paid. Hence, the company talks about deferred tax. The account on Bermuda became a money bank where the profits could be stored tax-free.
Google‘s royalty structure exists since 2004, but whether money has been pumped by the companies since its inception remains unclear. In the Dutch Chamber of Commerce, only the figures from 2012 can be found.
Google is not the only company that sent royalties to Bermuda via the Netherlands. Most importantly, however, came out from a study by the Central Planbureau (CPB) from 2019. “The outgoing royalty flow is dominated by Bermuda. It’s no secret that this is mainly about Google,” writes the researchers who looked at the role of the Netherlands as a transfer of money to tax havens.
Because Google left a few million in the Netherlands every year, the company had to pay profit tax in the Netherlands. Google tapped over 25 million euros in total. Which brought the tax on the entire flow of royalties in the Netherlands to a mere 0.02%.
Tax avoidance is not illegal, but in recent years the pressure on multinationals to stop it has increased. All kinds of countries have changed their legislation in recent years to counteract it. “In Ireland, they concluded in 2015 that this structure was a way to circumvent Irish withholding tax. They said, “That‘s not allowed.” Google therefore had to stop within five years,” says Tilburg tax professor Arjan Lejour.
New tax rules were also introduced in the United States. As a result, the money that American multinationals have been holding in tax havens like Bermuda is now within the reach of the US tax authorities.
Google says that changes in U.S. and Irish tax laws have played a role in their choice. Like new guidelines from the Organisation for Economic Cooperation and Development (OECD). “In December 2019, we simplified our corporate structure and started licensing our intellectual property from the US, not Bermuda,” says a spokesman for the multinational.
New rules Netherlands
The Netherlands also adapted the rules. Since this year, for example, the Netherlands has been taxing incoming royalties that are channelled to tax havens. Whether the new tax was part of Google’s consideration to stop tax construction through the Netherlands is unclear.
The fact that Google has lifted the tax structure does not mean that the tech company has completely disappeared from the Netherlands. Among other things, the company has a large office on the Amsterdam Zuidas. In addition, it recently opened a second data center in the Netherlands.