Google's Tasty Tax-Free Sandwich Twenty years ago, "googol" was an obscure math concept — the number one followed by a hundred zeros. Today, Google the company is the world's leader in online search, "cloud" computing, and advertising. Google recruits top computer talent to fuel growth. And that brainpower pays off — Google earned $10.8 billion in 2010 alone. With that sort of income in play, it shouldn't surprise you that Google recruits top tax talent, too. And that tax brainpower has paid off too. While Google is subject to a 35% corporate tax rate here in the U.S. (the world's highest), they actually pay just 22%. Their overseas tax rate is even lower — just 2.4%, despite operating mostly in high-tax countries with average corporate rates topping 20%. How does Google do it? They use a series of strategies with colorful names like "Double Irish" and "Dutch Sandwich" that shift income out of the United States and Europe into sunny island havens with no tax at all. See if you can follow how it works: 1.Google licenses the rights to its various intellectual properties to a company called Google Irish Holdings. (Don't go looking for them in Ireland — they're actually headquartered in tax-free Bermuda.) 2.Google Irish Holdings in turn owns a subsidiary called Google Ireland Limited — a "real" company with 2,000 employees located in Dublin that sells advertising worldwide. 3.Google Ireland Limited earns billions in revenues subject to Ireland's 12.5% corporate tax rate. Better than paying 35% in the U.S., right? But Google doesn't even want to pay that, so they send nearly all of those billions back to Google Ireland Holdings. Bottom line: the Double Irish lets Google stick the Irish subsidiary with all the expenses of earning income while shifting the income itself to Bermuda. "But wait!" you're probably thinking right now. Doesn't Ireland impose withholding taxes on transfers outside Ireland? No problem — just send payments from the Dublin entity through Google Netherlands Holdings, B.V., an Amsterdam firm with no employees that takes advantage of European Union rules to avoid Irish withholding. Detouring the money through Amsterdam creates the "Dutch Sandwich" part of the deal and saves a tasty billion in taxes every year. Strategies like the Double Irish and Dutch Sandwich aren't illegal. Companies like Microsoft, Oracle, Pfizer, and Eli Lilly all use the Double Irish. They aren't even new — back in the 1970s, Hollywood movie studios and even individual actors used a version of the Dutch Sandwich to avoid millions in taxes. Back in 2009, Treasury officials proposed new taxes on transfer payments between foreign subsidiaries, which they estimated would raise $86.5 billion in new revenue in the first decade. Then they invited corporate taxpayers to comment on the proposed rules. (I know, sort of like inviting Charlie Sheen to help you host an intervention.) Not surprisingly, the Treasury wound up dropping the proposal, although the White House continues to call for new rules on transfer pricing. The Double Irish Dutch Sandwich certainly isn't for individuals like us. But don't let that stop you from planning to keep your taxes as low as possible. And remember, we're here for your friends, family, and colleagues too!