Google Reportedly Saved $2 Billion on Delicious-Sounding Tax Dodge

This is not the "feeling lucky" approach.

Screen shot 2012-12-10 at 11.31.10 AMIf you found yourself asking, how much smarter is Google than the average U.S. company, we might have found an answer: Almost twice as smart.

Which is to say, Google’s overall effective tax rate was 21 percent in 2011, down from 28 percent in 2008, and almost half the rate paid by the average U.S. company.

That’s according to Jesse Drucker, the Bloomberg reporter who made accounting fun again back in 2010 when he introduced us to tax strategies known in the business as the “Double Irish” and the “Dutch Sandwich.”

The game goes something like this:

In Google’s case, an Irish subsidiary collects revenues from ads sold in countries like the U.K. and France. That Irish unit in turn pays royalties to another Irish subsidiary, whose legal residence for tax purposes is in Bermuda.

The pair of Irish units gives rise to the nickname “Double Irish.” To avoid an Irish withholding tax, Google channeled the payments to Bermuda through a subsidiary in the Netherlands—thus the “Dutch Sandwich” label. The Netherlands subsidiary has no employees.

And even as European governments make more noise about such tax dodges, Google hasn’t dialed back on such schemes yet. Per Mr. Drucker, the company avoided about $2 billion in worldwide taxes in 2011, almost double the total from 2008, and an increase that more or less parallels the company’s overseas revenue growth.

We’ve reached out to Google and will update if we hear back. Google told Bloomberg that the company complied with all tax rules and supports the national economies in which it invests.

Meanwhile: Is it lunch time yet?

Google Reportedly Saved $2 Billion on Delicious-Sounding Tax Dodge