IRS looks into Google's tax avoidance techniques

UNCLE SAM is looking into Google's finances to see how it avoided paying federal income taxes.

The US Internal Revenue Service (IRS) is undertaking a tougher than normal look at Google's finances to see how the firm managed to avoid paying taxes. It is apparently looking into offshore deals Google did after three acquisitions, including its $1.65bn purchase of Youtube.

With Google transferring these rights to foreign companies, Bloomberg reports that the firm can pay lower taxes on earnings made by those business units. Bloomberg also reports that Google employs two tax avoidance strategies called "Double Irish" and "Dutch Sandwich" that have helped it pay an effective overall income tax rate of just 18.8 per cent, which is less than half of the average combined US and state statutory rate of 39.2 per cent.

Jim Prosser, a spokesman for Google said of the IRS action, "this is a routine inquiry".

Google is also being investigated by the French income tax authority, which is looking into the firm's French and Irish dealings.

Google, Apple, Cisco, Microsoft and many others have been lobbying Congress for a so-called tax holiday that would allow them to bring their profits from foreign business units back into the US tax-free. The US government on the other hand is not so keen to give the firms a free pass and possibly lose $450bn or so in tax revenue over the next decade.

Given that the IRS investigations are likely to concern billions of dollars, any additional taxes that Google might have to pay could be significant. µ