Bloomberg News

Google Suit Against IRS Planned Over Domestic Tax Dispute

February 07, 2013

Google Inc. (GOOG:US)’s planned litigation against the U.S. Internal Revenue Service centers on a domestic, not international, tax dispute, the company said.

The lawsuit, which will be filed in U.S. Tax Court, relates to Google’s 2003 and 2004 tax bills, Niki Fenwick, a company spokeswoman, said today in an interview. The amount at stake is not material to the company, she said.

Google disclosed the potential lawsuit in its annual 10-K (GOOG:US) report with the Securities and Exchange Commission filed Jan. 29.

In the SEC filing, Google (GOOG:US) said it had settled its outstanding 2003 and 2004 issues with the IRS during 2012 except for “one issue which we plan to litigate in court.” The filing provided no additional details on the substance of the dispute or the amount of money involved.

Dean Patterson, a spokesman for the IRS, didn’t respond to an e-mailed request for comment. Federal privacy laws prohibit the IRS from discussing the cases of individual taxpayers and companies.

Google (GOOG:US) rose $3.92, or 0.5 percent, to $774.09 at 3:11 p.m. in New York.

Google, based in Mountain View, California, has been scrutinized by tax authorities around the world, including in France, Italy, the U.K. and Australia.

Shifting Profits

The company has used a series of maneuvers to shift profits out of the U.S. and into low-tax countries. The company has used techniques such as the “Double Irish” and “Dutch Sandwich” that route profits through Ireland and the Netherlands into Bermuda.

In the annual filing, the company reported its effective tax rate as 19.4 percent for 2012, down from 21.2 percent in 2010 and less than half of the combined U.S. federal and state statutory rate of 39.1 percent.

In 2011, the company avoided about $2 billion in taxes by shifting $9.8 billion in revenue to a Bermuda subsidiary, Bloomberg News reported in December 2012. In 2011, the IRS was auditing Google’s offshore deals, including how the company valued software rights and other intellectual property it licensed abroad.

In 2006, the IRS signed off on a 2003 intracompany transaction that moved foreign rights to Google’s search technology outside the U.S., Bloomberg reported in 2011. That means future profits associated with that intellectual property get reported outside the country.

The company reported pretax income (GOOG:US) in 2012 of $5.3 billion in the U.S. and $8.1 billion outside the country.

Like most large companies, Google is regularly audited by the IRS. The company said it expects the IRS to complete its examination of the 2007, 2008 and 2009 tax years over the next 12 months.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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  • GOOG
    (Google Inc)
    • $579.18 USD
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