Google is ending a controversial tax structure that allowed it to delay paying taxes on its international profits amid a global avoidance crackdown.
Alphabet, Google’s parent company, said it would no longer use an intellectual property licensing scheme in anticipation of more stringent tax avoidance regulation planned by the Organisation for Economic Co-operation and Development and G20 for next year along with changes to US and Irish laws.
The scheme allowed companies like Google to shift large portions of profits overseas by licensing intellectual property rights to foreign subsidiaries by exploiting gaps between different countries’ tax systems.
The “double Irish, Dutch sandwich” loophole allows multinationals to move profits to a tax haven registered in the Caribbean by moving it through subsidiaries based in Ireland and the Netherlands without being taxed in either country. They can then sit there for years before being moved to the US parent company.
Google’s 2017 filings to the Dutch government showed it moved €22bn (£19bn) through a shell company to Bermuda in 2018 by licensing intellectual property held in the tax haven.
But beginning in 2020, Google will “simplify” its corporate structure and license its intellectual property from the US, rather than Bermuda. It comes as changes to Irish tax laws will close the loophole next year.
A Google spokesman said: “In line with the OECD’s BEPS [Base erosion and profit shifting] conclusions and changes to US and Irish tax laws, we’re now simplifying our corporate structure and will license our IP from the US, not Bermuda.
“Including all annual and one-time income taxes over the past ten years, our global effective tax rate has been over 23pc, with more than 80pc of that tax due in the US.”
Several technology companies will find themselves paying more in taxes after G20 finance ministers said they would crackdown on corporate tax loopholes during a meeting in Fukuoka, Japan in June.
Facebook and Uber also use the Dutch subsidaries to reduce their global tax bills. Uber reportedly made a $6.1bn tax deduction using a Dutch intermediary that could allow it not to pay overseas taxes for years.
The OECD proposals would introduce more stringent tax regulations forcing companies to pay more in countries despite the lack of physical presence or profit.
Companies that continue to shift profits to offshore tax havens will be subject to a minimum tax rate, set as a standard across the G20.
The regulations are due to come into force in 2020. According to the OECD BEPS practices cost countries up to $240bn in lost revenue annually, which is the equivalent of 4-10pc of the global corporate income tax revenue.