The Internal Revenue Service (IRS) is investigating Google for avoiding taxes by shifting its profits overseas, according to a Bloomberg News report by Jesse Drucker.
The IRS has asked Google for information about its offshore deals after three acquisitions, including its 2006 purchase of YouTube, according to Bloomberg.
Like other multinational companies based in the U.S., Google has shifted many of its profits abroad to avoid higher U.S. tax rates. Google's effective tax rate in the second quarter was just 18.8 percent, less than half the average U.S. and state combined tax rate, according to Bloomberg.
British authorities have also accused the company of avoiding taxes in Great Britain, according to The Guardian. Last year Bloomberg reported that the company's overseas tax rate was just 2.4 percent.
Google has been saving about $1 billion per year by shifting much of its profits through Ireland and the Netherlands to Bermuda, where there are no corporate taxes at all, Bloomberg reported last year.
Though some may accuse Google of breaking its "Don't be evil," mantra, the company is not the only U.S.-based multinational corporation that has been accused of pay less than its fair share to Uncle Sam. General Electric paid little to no U.S. taxes in 2010, according to The New York Times' Joe Nocera. The U.S. tax code allows American companies to avoid paying U.S. taxes on overseas profits if the company actively financed some deal or activity that created those profits: a loophole that many corporations use to their advantage, according to the NYT.
Exxon Mobil itself paid no federal income taxes in 2009, according to ThinkProgress. It did, however, pay a larger percentage of its income to taxes than any other U.S. company, due to the high tax rates of the countries from where they extract a large amount of oil.
Congress is considering a policy that would give companies a tax break on their overseas profit in order to encourage American multinational companies to invest at home. The tax holiday would bestow a large tax break on more than $1 trillion in offshore profits, according to Bloomberg. And among the large forces lobbying for the corporate tax holiday are Google and Apple; more than 160 lobbyists in total are trying to convince Congress to give companies such a tax break to bring their profits home, Bloomberg reported.
Studies have shown that the last time Congress passed a tax holiday in 2004, it did not spur new hiring or investment; instead, companies largely used the extra money to buy back their own stock, according to Bloomberg. A tax holiday also would increase the deficit, costing the United States $78.7 billion in revenue over the next decade, according to the Joint Committee on Taxation.