Google and the “Dutch Sandwich”…interested in $3B in tax savings?

Posted by Kelley LearcloseAuthor: Kelley Lear Name: Kelley Lear
Email: kelley.lear@redmoonsolutions.com
Site: http://blog.redmoonsolutions.com
About: Kelley is a member of the executive leadership team and leads our sales and marketing efforts at Red Moon Solutions. Kelley’s extensive experience in project management, product management, and consulting with Fortune 500 and Global 1000 clients is extremely important in this role.See Authors Posts (127) on Apr 12, 2011 | 0 comments

The other day, I was lucky enough to stumble across a great post by Kelly Phillips Erb, JD and LLM in Taxation – otherwise known as “Tax Girl”. If you don’t already read her blog, it is www.taxgirl.com, and is usually pretty interesting. On March 20, 2011, she shared a video from a colleague outlining a strategy recently used by Google in order to minimize corporate income taxes. I actually remember quite a few blog posts and articles written about this strategy last October, but never had a chance to read more about it.

Although the video is a tool being used by Greenstein, Rogoff, Olsen & Co. to advertise their own tax planning/strategy services, and I can neither recommend or otherwise comment on the quality of their services (as I have never worked with them before), they do present a very interesting topic. It is always interesting to read about “successful” tax planning strategies. Especially hearing what folks are doing in restructuring transactions and any strategic decisions as it relates to location of operations, transactions or entity structures in order to reduce ETR. Of course, I am also always interested in what Google is up to! In this case, Google saved approximately $3 billion in U.S. and Foreign Taxes.

It is worth watching the video as it walks you through an offshore planning model in which Google as well as many other Silicon Valley companies have used a planning technique called a “Dutch Sandwich” or what others call a “Double Irish”. If that is making you hungry… or thirsty for more, Ron Cohen will walk you through the following scenario:

1. Setting up two Irish companies:

a. One as an “Irish resident” holding company operating in Ireland

b. One as a “Non-resident” company being managed and controlled by a Bermuda company which has a zero percent (0%) tax rate

2. Setting up one Dutch company as the Netherlands have a great treaty network which is helpful for moving money around

3. Creating and negotiating an “Advanced Pricing Agreement” or “APA” :

a. This consisted of two steps – going to the IRS to ask permission for “approval” if they transferred software offshore by negotiating a License Fee (Royalty) with that offshore entity. Essentially making sure you can’t get into trouble later…

b. Then, actually asking for a low royalty from the Bermuda company so that outside income coming back to the US has a lower tax burden

4. The Bermuda – Irish “Non-resident” company then licenses the software to the Netherlands company who then licenses the software back up to the “Irish resident” operating company in Ireland that records all the European revenue. As you can tell, you really need to watch the video.

Is your head a bit dizzy from feasting on this “Dutch Sandwich”? Tax planning can be fun! After watching this, I think I will head out for happy hour to the local Irish Pub.