Oct 13, 2011 8:42 PM GMT
It's ironic considering Obama used one of its early employees to highlight that millionaires don't pay enough in taxes and asking to pay more. Google, one of the most profitable and valuable firms in the world paid 19% in taxes last quarter despite normal US corporate taxes being 35%. Google's senior executives have also held several fundraisers for the Obama Administration.
Google (GOOG) this afternoon reported that it easily topped Q3 revenue expectations, with $9.72 billion. It also reported that it has more than 40 million users of its Google+ social service, although it's unclear how deep the average engagement is compared to that of Facebook users.
One of the more interesting items in Google's release involves its tax bill. The search giant reports that its "effective tax rate was 19% for the third quarter of 2011."
That's in line with what Google paid in Q2, but down significantly from the 25% effective tax rate paid in Q1. For context, the highest U.S. corporate tax rate is 35%.
It also comes as reports suggest that Google is being audited by the IRS for allegedly sheltering profits in offshore subsidiaries. Google did not mention the audit in its Q3 earnings release.
The U.S. Internal Revenue Service is auditing how Google Inc. 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 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 for $3.4 billion.