Google Tax Probe to Focus on Offshore Units

[dkf]

The U.S. Internal Revenue Service is auditing how Google Inc. (GOOG) avoided federal income taxes by shifting profit into offshore subsidiaries, according to a person with knowledge of the matter.

The agency is bringing more than typical scrutiny to how the company valued software rights and other intellectual property it licensed abroad, said the person, who requested anonymity because the audit isn’t public. The IRS has requested information from Google about its offshore deals after three acquisitions, including its $1.65 billion purchase of YouTube, the person said. The transfer overseas of these kinds of rights has enabled Google to attribute earnings to foreign units that pay lower taxes, Bloomberg News reported a year ago.

While Google’s potential liability isn’t clear, similar deals between companies and offshore arms are often the subject of disputes over hundreds of millions of dollars in taxes, said Daniel Frisch, an economist at Horst Frisch Inc. which advises businesses on transfer pricing -- the allocation of income between units in different countries. In 2006, the IRS settled a case with drugmaker GlaxoSmithKline Plc (GSK) for $3.4 billion.

“The very biggest transfer-pricing tax disputes are over transfers of intangibles to offshore subsidiaries,” said Frisch, whose firm is based in Washington.

http://www.bloomberg.com/news/2011-10-13/irs-auditing-how-google-shifted-profits-offshore-to-avoid-taxes.html

[ProgressiveProfessor]

1. Another tax case where the corps are clearly smarter than the government

Buffet has the same kind of case pending

[dkf]

2. Add loopholes and they will be taken advantage of.

[ProgressiveProfessor]

3. Many loopholes were at one point well intentioned attempts at social engineering via the tax code

Despite their obvious failures, we keep at it rather than rethinking the approach.

The guys making the rules are nowhere near as good at the tax code as the entire industry of tax lawyers and accountants. Extreme simplification (no I do not support the Forbes Fair Tax POS) with out the social tinkering would go a long way towards addressing revenue and fairness