IRS Audits Google’s Offshore Tax Strategies

The Internal Revenue Service is reportedly auditing Google in an effort to learn more about the search giant’s use of foreign subsidiaries to shift profits in the wake of three acquisitions.

One of the deals involved the company’s 2006 acquisition of YouTube, according to a Bloomberg report. The IRS is reportedly looking into how the company valuated software rights and intellectual property licensed in other countries.

A company spokesman classified the IRS audits as a “routine inquiry.” As a large business taxpayer, the company’s taxes are regularly examined by the IRS.

Google has been known to use sophisticated tax strategies dubbed the “Double Irish” and the “Dutch Sandwich” to shift its foreign income to subsidiaries in countries such as Ireland and the Netherlands (see Google Does the ‘Double Irish’ and the ‘Dutch Sandwich’ to Save on U.S. Taxes).

Transfer pricing and the use of foreign subsidiaries to move multinational corporate profits around the world have come under increasing scrutiny. Companies have stepped up their lobbying efforts in a push for a tax holiday on an estimated $1 trillion in repatriated foreign profits, and the idea has found favor with some lawmakers who have introduced legislation that would bring foreign profits back to the U.S. at a low tax rate (see McCain and Hagan Introduce Repatriation Tax Holiday Bill).