IRS Scrutinizes Google For Offshore Transactions

It appears that the IRS attack on offshore tax havens may claim another “victim.”  The IRS is now examining how Google was able to avoid federal income taxes by shifting profits into offshore subsidies.  It seems that Google transferred certain software rights and other intellectual property, including their $1.6 billion investment YouTube, into overseas foreign units.  This enabled Google to attribute earnings generated by these holdings to the offshore entities, which pay lower income taxes.

Moving profit abroad is an especially common method of slashing the tax bills of technology companies.  This is primarily because of their valuable, and easily transportable, collections of patents and copyrights.  Companies such as Google, Cisco, Facebook, and Microsoft have all utilized similar strategies to move profits earned from their intellectual property into entities established abroad, which often have no employees or offices, but are located in tax havens such as Bermuda, the Cayman Islands and Switzerland.  In response, the IRS has engaged in a number of high profile disagreements with multinational companies over their transfer pricing, including a 2006 settlement with drugmaker GlaxoSmithKline for $3.4 billion.

Whether Google’s tax strategy will ultimately cause them any real legal issues is difficult to say at this point.  However, what cannot be disputed is the fact that they will likely have to pay hundreds of thousands of dollars in legal bills defending it.  Taking a gamble on a “creative” tax strategy may be worth the cost to a multinational billion dollar corporation, but certainly not for most individuals.

Most of us just need some common sense advice on how to reduce our tax burden and put some extra money in our bank accounts.  Thus, one of the primary goals of any experienced tax attorney is to take care of the client by working to minimize their taxes.  Whether planning an estate, starting a business, or saving for retirement; the idea is not to be “creative,” it is to be effective, at saving money for the client.

If you have questions or need help with tax planning, contact an Attorney in Jacksonville who can assist you today.