Internet giant Google funneled 128 billion euros through a Dutch subsidiary to tax haven Bermuda in eight years. This yielded the Dutch tax authorities more than 25 million euros between 2012 and 2019. Google stopped the construction last year, according to the last published annual report of the Dutch subsidiary.
Google says the money has since been returned to the United States, where the tech giant’s headquarters are located. Tax would have been paid on that. How much is unknown.
The tax construction was about pumping out royalties, fees for using Google’s intellectual property. Via a subsidiary from Ireland and one from Singapore, those fees ended up in the Netherlands at Google Netherlands Holdings BV. The Dutch company then transferred the billions to a company in Bermuda.
Due to the flexible legislation and the extensive treaty network of the Netherlands, Google did not have to pay tax 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 levy any tax.
Only if Google were to move the money from Bermuda to the United States would tax be paid. Hence, the company speaks of tax deferred. The account in Bermuda thus became a piggy bank where profits could be stored tax-free.
Google’s royalty structure has existed since 2004. But whether money has been pumped through the companies since its inception remains unclear. Only the figures from 2012 can be found in the Dutch Chamber of Commerce.
Serving hatch
Google is not the only company that has sent royalties to Bermuda via the Netherlands. But most importantly, as emerged from a study by the Central Planning Bureau (CPB) from 2019. “The outgoing royalty flow is dominated by Bermuda. It is no secret that this mainly concerns Google “, write the researchers who looked at the role of the Netherlands as a conduit for money to tax havens.
Because Google left a few million euros in the Netherlands every year, the company had to pay profit tax in the Netherlands. All in all, Google tapped more than 25 million euros. This brought the tax on the entire flow of royalties in the Netherlands to a mere 0.02 percent.
Tax avoidance is not illegal, but in recent years the pressure on multinationals to quit has increased. Many countries have changed their legislation in recent years to counter it. “In Ireland, they concluded in 2015 that this structure was a way to circumvent Irish withholding tax. They said then: that is not allowed. Google had to stop it 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 stowed in tax havens like Bermuda now fall within the reach of the US tax authorities.
Google says changes in US and Irish tax laws played a role in their choice. Just like new guidelines from the Organization for Economic Co-operation and Development (OECD). “In December 2019, we simplified our business structure and started with licensing of our intellectual property from the US, not Bermuda, “said a spokesman for the multinational company.
New rules in the Netherlands
The Netherlands also amended the rules. For example, since this year, the Netherlands has been taxing incoming royalties that are channeled to tax havens. Whether the new tax played a role in Google’s consideration to stop the tax construction via the Netherlands is unclear.
The fact that Google has lifted the tax construction does not mean that the tech company has completely disappeared from the Netherlands. The company also has a large office here on the Amsterdam Zuidas. In addition, it recently opened a second data center in the Netherlands.